Brookfield to buy East-West Pipeline in India for $1.87bn

Canadian firm Brookfield Asset Management-led India Infrastructure Trust is set to acquire Reliance Industries Limited’s (RIL) East-West Pipeline in India for a total consideration of Rs130bn ($1.87bn).

Brookfield sponsors and holds a 90% interest in India Infrastructure Trust, which is an infrastructure investment trust (InvIT).

The Canadian company has also filed the preliminary placement memorandum under which the InvIT will acquire a 100% equity interest in Pipeline Infrastructure Private Limited (PIPL), which currently owns and operates the East-West pipeline.

The 1,400km East-West Pipeline transports gas from the RIL’s offshore KG-D6 block in the state of Andhra Pradesh to customers in other parts of the country. The block is located in the Krishna-Godavari (KG) basin of the Bay of Bengal on the eastern coast.

As a result of the deal, RIL has reworked the existing pipeline usage agreement.

Following the revision, the reserved capacity has now been reduced to 33MMSCMD from 56MMSCMD.

RIL is required to offtake a minimum of 22MMSCMD of gas from the pipeline at the current final tariff of Rs71.66 ($1.02)/MMBTU, recently approved by the regulator.

If the company fails to honour this commitment, it will have to pay the differential amount. The value of the amount is the difference between Rs5bn a quarter and the actual revenue earned by PIPL.

In a statement, RIL said: “Considering the new investments in the upstream sector in the KG basin, and the growing LNG imports, ability to swap gas, the average volume expected to be transported through the pipeline is expected to be significantly higher compared to the current levels.

“RIL will be entitled to significant participation in the net earnings of PIPL under the mechanism specified in the pipeline usage agreement.”

RIL and its partner are investing around Rs400bn ($5.75bn) in projects in the KG basin.

The loss-making pipeline was running well below its stated capacity due to a decline in natural gas production from the company’s KG basin blocks.

The value of preference shares owned by RIL in PIPL is around Rs40bn ($575.44m). The shares can be converted into equity at the end of 20 years.

Furthermore, RIL has the right to buy shares of PIPL held by the InvIt at the end of 20 years at an equity value of Rs500m ($7.19m).