Brookfield to acquire RIL’s East West Pipeline for $1.87b

Labourers rest in front of an advertisement of Reliance Industries Limited at a construction site in Mumbai, India, March 2, 2016. REUTERS/Shailesh Andrade/Files

Canada-based Brookfield Asset Management’s India Infrastructure Trust, an InvIT, is acquiring Reliance Industries Ltd’s (RIL’s) loss-making entity East West Pipeline for ₹13,000 crore, RIL said on Thursday.

“Brookfield has filed the preliminary placement memorandum, in terms of which India Infrastructure Trust, an InvIT set up by Brookfield as sponsor and 90% investor, will invest ₹13,000 crore to acquire the East West Pipeline,” RIL said.

The InvIT will acquire 100% equity interest in Pipeline Infrastructure Private Limited (PIPL) which currently owns and operates the East West Pipeline.

Following this acquisition by Brookfield, the existing pipeline usage agreement has been reworked and the reserved capacity reduced to 33 million metric standard cubic metres per day (MMSCMD) against the 56 MMSCMD. Additionally, any unutilized capacity payment by RIL will be the difference between the ₹500 crore a quarter and actual revenue earned by PIPL.

“RIL will continue to be entitled to transport gas, either by itself or of any customers, free of cost against any outstanding unutilized capacity payments,” the statement added.

That means, at the current approved final tariff of ₹71.66 per million metric British thermal unit or MMBTU, if the average volume of gas transported is 22 MMSCMD, RIL will not be liable to make unutilized capacity payments, RIL said.

According to the terms and conditions agreed to, a review of tariff in April 2020 will also consider upward revision to tariff arising from determination of lower revised capacity of the pipeline, said RIL.

Given RIL and its partner BP India’s renewed investments of ₹40,000 crore in the KG basin; the growing liquefied natural gas imports and ability to swap gas, the average volume expected to be transported through the pipeline is expected to be significantly higher compared to the current levels.

Thus, RIL will be entitled to a significant participation in the net earnings of PIPL under the mechanism specified in the pipeline usage agreement.

“RIL’s current investment in preference shares valued at Rs. 4,000 crore to continue and will be converted into equity at the end of 20 years,” said RIL.

Additionally, at the end of 20 years, RIL has the right to acquire equity shares of PIPL held by the InvIT at an equity value of Rs. 50 crore, the company said.

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