Ernst & Young will advise for a stake in Iran pipeline

Vol 9, PW 16 (17 Nov 05) Midstream & Downstream

Ernst & Young is set to advise the oil ministry that it has everything to gain by becoming a stakeholder in the proposed overland pipeline from Iran to India through Pakistan.

Any structure without Indias participation will be difficult, an industry source tells us. There is no historical precedent where an international project (of this scale) has been executed without the offtakers involvement.

In September, Indian Oil appointed E&Y as the governments financial advisor to the Iran to India pipeline with a mandate to evaluate two contrasting scenarios: India as a strategic equity stakeholder in the project or India as a simple gas buyer at the border. E&Y submitted its first report to the oil ministry on 13th October and plans to submit a second report later this month, after incorporating comments from the government.

As financial consultant, E&Y is understandably most concerned with the cost of downstream infrastructure required to absorb expected deliveries of 90m cm/d from Iran. Assume, for example, that 90m cm/d is equivalent to 20,000-MW and that it costs a total of Rs7cr to transmit and distribute one megawatt.

In this case India would need to invest close to 150,000cr for downstream activities, we learn. It is impractical to make such an investment without getting involved in the project as a stakeholder.

The risk for India would be lower if it participates. If India is a participant there would be greater control over the project and the risk will be lower than if it does not participate.

As a participant you are involved in all the decision making. If India agrees to become a stakeholder, would the cost not be too high Much of the money will come from debt, we learn.

Nobody is saying India should take a controlling stake in the pipeline but it should have enough equity to influence the course of the project.