Brookfield Asset Management has said that its India Infrastructure Trust (InvIT) will invest Rs 13,000 crore to acquire Reliance Industries-owned East West Pipeline. The loss-making East West Pipeline was earlier called Reliance Gas Transportation Infrastructure Ltd.
Mukesh Ambani-owned Reliance informed stock exchange late on Thursday that Brookfield has filed the preliminary placement memorandum in terms of which InvIT will invest Rs 13,000 crore to acquire the East West Pipeline. “As a part of the transaction, InvIT will acquire 100 per cent equity interest in Pipeline Infrastructure, which currently owns and operates the Pipeline,” it said.
Pursuant to this acquisition by Brookfield, the existing pipeline usage agreement has been reworked. The reserved capacity will be reduced to 33 million standard cubic feet per day (MMSCMD) against the 56 MMSCMD. Any unutilized capacity payment by Reliance will be the difference between Rs 500 crore a quarter and actual revenue earned by Pipeline Infrastructure. Reliance will continue to be entitled to transport gas, either by itself or of any customers, free of cost against any outstanding unutilised capacity payments. At the current approved final tariff of Rs 71.66/MMBTU, if the average volume of gas transported is 22 MMSCMD, Reliance will not be liable to make unutilised capacity payments.
The next review of tariff in April 2020 will also consider an upward revision to tariff arising from determination of lower revised capacity of the pipeline. Considering the new investments in the upstream sector in the KG basin, and the growing LNG imports, 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.
However, Reliance will be entitled to a significant participation in the net earnings of Pipeline Infrastructure under the mechanism specified in the pipeline usage agreement. Reliance’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. Further at the end of 20 years, Reliance will have the right to acquire equity shares of Pipeline Infrastructure held by the InvIT at an equity value of Rs 50 crore.