End users to bear brunt of Dahej-Uran project delay

The controversy over the pipeline tender for Dahej-Uran Pipe Line (DUPL) project of Gail India is expected to be over by December end when the tenders would be opened for the selection of pipeline vendors.

But nearly 15 corporates, who had earlier entered into a gas purchase agreement with Gail, would have to bear the brunt of delays in the Rs 1,830 crore project.

Gail is expected to revise the price of gas for these entities which have put up their plants strategically close to various points alongwith this 475 km long pipeline. The delays have already caused an estimated Rs 150 crore cost escalation of the project as steel prices have gone up during last month.

Tractebel Engineering of Belgium, the project management consultant (PMC) for DUPL, has claimed higher amount to be paid to it for delays on part of the ministry of natural gas and petroleum and Gail in deciding the vendor for pipes.

A Gail spokesperson said, "As per the revised schedule, the project would be completed by the end of July 2006 and Gail would take all possible steps to complete the project by putting it on a fast track. Gail has signed term sheets with numerous potential and existing customers in Uran region, and in case it is warranted, the change in gas tariff is possible."

Companies such as Bombay Dyeing, Rama Petrochemicals, National Peroxide, Century Rayon, H&R Johnson, Nitco, Bhushan Steel, Uttam Galvanised Steels, Schenectady Herdillia, have all signed term sheets for taking gas supply from Gail during August this year, with an understanding that the project would be completed by January 2006.

Now with the delays of over six months and also escalation of project cost, Gail would have not much option but to pass the rise in project cost to the end-users. The companies have entered into gas purchase agreement of period ranging between three years to 25 years.

Spokesperson for one of the buyers, who is also an existing customer of Gail in Maharashtra, said, "The delay in gas supply would affect our manufacturing plan. Further, we are getting indication that even the purchase price would be revised which was fixed in August during signing of the Memorandum of Understanding (MoU) with Gail. The delays are only because the ministry intervened in the project saying that a certain category of pipes has to be used and the re-tender process lead to delays."

When enquired whether there would be an incremental amount to be paid to the PMC, Tractebel, the Gail spokesperson said, "The incremental amount expected to be paid to PMC due to the extension in the project schedule will be to the tune of 25 per cent of the awarded cost."

Admitting that the recent steel price hike would cause significant escalation in project cost which would also play a role in revising gas purchase price, the spokesperson, said, "The bids for DUPL are due to be opened by the month end and till the time the bid is opened, the exact impact of increase in steel prices can not be ascertained."

It is also being said that some other facts such as freight cost hike and so on may also impact the project cost "which could not be accurately determined at this stage."