Bidders object to 'Performance Guarantee'

Vol 6, PW 5 (08 May 02) Midstream & Downstream

Reliance and Sun Securities have analysed the project threadbare.

"They have really gone into the nitty-gritty of the pipeline," a source tells PETROWATCH. We learn Reliance wants the BOOT concession period over 30 years, not 15 as proposed by Petronet-India.

Both bidders also want to know why they are being asked to submit a performance guarantee of Rs100cr ($20.8m) when they will be investing more than Rs2, 000cr ($416m) in laying the pipeline itself. "Petronetsargument is that if there is a performance default it can invoke the guarantee.

Sun Securities and Reliance also want changes in the scope of the work. For instance, reductions in the diameter of the pipeline and the thickness of the pipe.

We are told Petronet's feasibility report has provided for a pipeline diameter to take care of product movement for the next 100 years. Any reduction in diameter or thickness will lead to lower costs.

Another crucial question is over the pipeline tariffs. Petronet has set the base and ceiling tariff at 50% and 70% respectively of the railway tariff for petroleum products.

This is unacceptable. Reliance and Sun Securities have no issue with the base tariff but want the ceiling tariff to be raised to 85%.

"What do we do if the railways decide to reduce tariffs" reveals a source. "In such a situation a higher cap is essential to make the operation economically viable." Also, why operate under the common carrier principle when a regulator will be around Both bidders also want Petronet to ensure that no competing pipeline is laid.

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