Indian Oil Corp (IOC) and its partner, Adani Gas Ltd, will invest about Rs 96 billion in rolling out infrastructure for retailing CNG to automobiles and piped natural gas to household kitchens in 10 cities, for which they recently won licenses, the state-owned firm said on Monday.
In 2013, the two firms had incorporated a 50:50 joint venture company, IndianOil-Adani Gas Pvt Ltd (IOAGPL), for implementation of city gas distribution (CGD) projects in various cities.
Over the years, IOAGPL has participated in various bid rounds for a city gas licence, conducted by the Petroleum and Natural Gas Regulatory Board (PNGRB). As on date it has licenses for 19 geographical areas (GAs), IOC said in a notice to shareholders.
The notice was to seek shareholder nod for providing corporate guarantees to banks on behalf of IOAGPL, furnishing performance bank guarantees to PNGRB to fulfill the licence conditions.
“In line with PNGRB regulations, authorisation to the successful entity is issued only after the entity submits a Performance Bank Guarantee (PBG) from any scheduled bank for a pre-determined amount for specific GA,” IOC said in the notice.
Shareholders will vote on the proposal at IOC’s annual general meeting (AGM) in Mumbai on August 28. City gas distribution (CGD) projects, which entail retailing CNG to automobiles and marketing piped natural gas to household kitchens for cooking as well as to industries for use as fuel, are typically long duration projects, wherein demand build-up is gradual and revenue generation becomes appreciable only in the later years.
“IOAGPL is still in the process of development of CGD projects in its authorised GAs,” IOC said. “Currently, projects in eight GAs have been commissioned (viz. Chandigarh, Allahabad, Panipat, Daman, Udhamsingh Nagar, Ernakulam, Dharwad, and Bulandshahr) and the South Goa GA will be commissioned shortly. During 2018-19, IOAGPL won 10 more GAs and development of CGD Project in these Gases would require capital expenditure of Rs 96 billion (approximately) to meet the committed bid numbers.”
The funding required for capital expenditure has to be met from equity contribution/ debt financing, it said. “The revenue from the commissioned GAs is currently insufficient to handle huge financial commitment in the form of capex to achieve committed targets. IOAGPL would continue to participate in bidding for CGD projects in the future, and in the event of emerging successful, it may seek promoters’ assistance to provide required corporate guarantees (CGs) in favour of banks for issuance of PBGs to PNGRB on behalf IOAGPL,” the notice said.
Considering an estimated average value of Rs 250 million for PBG per GA, IOAGPL may require promoters’ support for the issuance of CGs worth Rs 2 billion. IOAGPL being a 50:50 JV, IOC’s share for extending such CGs would be Rs 1 billion, the company said. “Considering the anticipated growth in activities of IOAGPL, it is proposed to appoint one of the whole-time directors of IOC as a part-time nominee director on the board of IOAGPL,” the notice said.
According to provisions of Section 185 of the Companies Act, 2013, if a Director on the IOC board is also a Director on the board of IOAGPL, which is a private limited company, then the state-owned firm can provide loans or issue CGs in favour of the banks on behalf of the joint venture. This, however, is possible only upon approval by the shareholders of IOC through a special resolution passed at a general meeting.
“Accordingly, as required under Section 185 of the Companies Act 2013, the approval of members is sought through Special Resolution to provide CGs in favour of banks on behalf of IOAGPL for issuance of PBGs in favour of PNGRB for CGD Projects in various GAs, up to a limit of Rs 1 billion,” the notice said.
