Cairn's $800-mn pipeline project hits another block

Cairn India's proposed $800-million (Rs 3,200 crore) pipeline project for transporting crude oil from its Rajasthan block to a coastal location in Gujarat may still have to clear some hurdles. The petroleum ministry plans to engage a third-party consultant for an independent evaluation of the project as it involves public money.

It is understood that the government would also claim its ownership of the asset after the completion of the pipeline. The recently-granted ‘rights of use’ (RoU) merely allows Cairn to secure access to the land to build the pipeline from Rajasthan. It does not mean an automatic approval for the project cost, official sources in the petroleum ministry said.

The company is still awaiting government’s approval ‘to include the pipeline cost in the field development plan (FDP)’ and to allow the operator ‘to shift the delivery point’. “Cairn has proposed to include the cost of pipeline in FDP, making the entire expenditure recoverable. Consequently, the government’s profit share would take a proportional hit. It is, therefore, necessary to evaluate the project cost independently. And, as the government’s money is involved in constructing the pipeline, it would also own the asset,” an official said.

In its first AGM held recently, Cairn India chairman Bill Gammell confirmed that the government approval was pending. “The RJ-ON-90/1 (the Rajasthan block) operating committee (Cairn India and ONGC) have agreed an oil export (mid-stream) solution. This proposal has been sent to the government for approval, after which it will be submitted to the RJ-ON-90/1 management committee,” he said at the AGM on September 20. Cairn and ONGC are partners in the block with 70% and 30% participating interests respectively.

Cairn has already hired a UK-based consultant JP Kenny to assess technical and financial aspects of the project. The consultant is expected to submit its report soon, a source said. JP Kenny is a global pipeline and sub-sea engineering and management contractors. The company was engaged in the feasibility study of natural gas distribution system in New Delhi for Indraprastha Gas.

However, sources said there was no reason for evaluating the project afresh. Several options to evacuate crude from the block had been evaluated by the technical experts of the government and the heated pipeline project was finally found to be the most-viable solution. It is learnt that even the cost of the project had been reviewed by the government.