Oil regulator approves sale of Mukesh Ambani's pipeline to Brookfield

Billionaire Mukesh Ambani has won oil regulator PNGRB's approval for selling his loss-making east-west natural gas pipeline to Canadian investor Brookfield, a top official said.

Ambani's Reliance Gas Transportation Infrastructure Ltd, which later changed the name to East West Pipeline Ltd (EWPL), a decade back built a 1,400-kilometer pipeline from Kakinada in Andhra Pradesh to Bharuch in Gujarat to transport natural gas discovered in a KG basin block operated by his flagship firm Reliance Industries.

However, the pipeline which had a capacity to transport 80 million standard cubic metres per day of natural gas is currently operating at less than 5 per cent of its capacity as output from KG-D6 block of RIL fell sooner than expected.

While the Competition Commission of India (CCI) had in September approved the transaction where Brookfield is sponsoring an Infrastructure Investment Trust (IIT) called India Infrastructure Trust as the acquisition vehicle, the Petroleum and Natural Gas Regulatory Board (PNGRB) gave its nod a few weeks back.

"Yes, the approval has been accorded," PNGRB Chairman Dinesh K Sarraf said.

This will be Brookfield's first investment in the energy sector in India.

However, the acquisition price has not been disclosed.

According to September 11 approval of the CCI, the pipeline housed under EWPL will be transferred to an entity called Pipeline Infrastructure Pvt Ltd (PIPL), a wholly-owned subsidiary of Reliance Industries Holding Pvt Ltd (RIHPL).

"RIHPL would sell its entire issued and paid up equity share capital of PIPL to IIT," the CCI order said. "Further, IIT will also subscribe to the non-convertible debentures to be issued by PIPL."

Brookfield Asset Management Inc's affiliate Rapid Holdings Pte Ltd and PenBrook Capital Advisors Pvt Ltd (PCAPL) had executed a framework agreement to buy the pipeline on August 28.

PCAPL is a joint venture between Peninsula Investment Management Co Ltd and Brookfield Capital Partners (Bermuda) Ltd.

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"By way of the proposed combination, the entire equity share capital and voting rights of PIPL is proposed to be acquired by India Infrastructure Trust (IIT), a trust to be established/sponsored by Rapid and registered under the Indian Trusts Act, 1882 and the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014," the CCI order said.

PCAPL would be appointed as the investment manager of IIT. 

EWPL had operating revenue of Rs 884 crore and posted a net loss of Rs 715 crore in the year ended March.

The loss was mainly because of the pipeline operating at less than its capacity.

KG-D6 fields, which began production in April 2009, had hit a peak of 69.43 mmscmd in March 2010 before water and sand ingress forced the shutdown of wells. This peak output comprised 66.35 mmscmd from D1 and D3, the largest of the 18 gas discoveries on the KG-D6 block, and 3.07 mmscmd from MA field, the only oil discovery on the block.

Currently, the fields produce less than 4 mmscmd of gas, which EWPL transports to customers.

EWPL had a total outstanding debt of Rs 13,715 crore as of March while its plant, property and equipment had an asset value of around Rs 11,000 crore, according to its last annual balance sheet.