Jindal unhappy about winning GAIL pipe order

Vol 14, PW 17 (24 Feb 11) Midstream & Downstream

Companies are usually overjoyed when they win tenders but Jindal Saw Pipe isn’t very enthusiastic about supplying 77,000 tonnes of X-70 grade steel pipe to GAIL for its 1389-km Dabhol to Bangalore gas pipeline project.

PETROWATCH learns GAIL issued a LoI to Delhi-based Jindal Saw earlier this month (February) and wants Jindal to begin pipe deliveries by June. Hooray for Jindal Not quite.

“This is a loss-making project,” laments a Jindal source. “We could lose nearly Rs60cr ($13m) on this order.

” This is because X-70 grade steel prices have shot up by nearly 40% over the past four months. “We originally offered X-70 grade pipe to GAIL last November,” we are told.

“Pipe deliveries could have started by now if they’d agreed.” Jindal won a contract from GAIL to supply 40,000 tonnes of X-70 grade steel pipe on August 17 last year and also won another contract to supply 67,000-tonnes of imported X-80 grade steel pipe.

But its Chinese and South Korean suppliers of X-80 grade steel then backed out and Jindal failed to deliver any X-80 pipe to GAIL. After consulting international corruption watchdog Transparency International, GAIL chose to invite bids from pipe manufacturers again to avoid accusations of favouring Jindal.

This time it asked for 77,000-tonnes of X-70 pipe to replace the 67,000-tonnes of X-80 pipe that Jindal never delivered. GAIL re-tendered only “at Jindal’s risk” saying Jindal would pay the difference between its original quoted prices and those of any selected pipe manufacturer.

Poor Jindal had already submitted a Rs50cr ($11m) ‘performance bank guarantee’ to GAIL in November, 2010 and didn’t want to risk antagonising GAIL. So it bid in the fresh pipe tender, despite the unwelcome potential losses.

On January 14, GAIL conducted a ‘reverse auction’ to procure the missing pipe, and Jindal easily won.