Brookfield to acquire RIL's East-West pipeline for Rs13,000 crore

Canada-based Brookfield Asset Management’s India Infrastructure Trust (InvIT) is acquiring Reliance Industries Ltd’s (RIL) loss-making entity East-West Pipeline for Rs13,000 crore, RIL said on Thursday.

“Brookfield has filed the preliminary placement memorandum, in terms of which India Infrastructure Trust, an InvIT set up by Brookfield as sponsor and 90 per cent investor, will invest Rs13,000 crore to acquire the East West Pipeline,” RIL stated in a release. 
As per the agreement, Brookfield will acquire 100 per cent equity interest in Pipeline Infrastructure Private Limited (PIPL), which currently owns and operates the pipeline.
Pursuant to this acquisition by Brookfield, the existing pipeline usage agreement has been reworked as follows:
  • The reserved capacity reduced to 33 MMSCMD against the 56 MMSCMD.
  • Any unutilised capacity payment by RIL will be the difference between Rs500 crore a quarter and actual revenue earned by PIPL.
  • RIL will continue to be entitled to transport gas, either by itself or of any customers, free of cost against any outstanding unutilised capacity payments.
At the current approved final tariff of Rs71.66/MMBTU, if the average volume of gas transported is 22 MMSCMD, RIL will not be liable to make unutilised capacity payments.
The next review of tariff in April 2020 will also consider upward revision to tariff arising from determination of lower revised capacity of the pipeline.
Considering the new investments in the upstream sector in the KG basin, and the growing LNG imports, ability to swap gas, the average volume to be transported through the pipeline is expected to be significantly higher compared to the current levels.
RIL will be entitled to a significant participation in the net earnings of PIPL under the mechanism specified in the pipeline usage agreement.
RIL’s current investment in preference shares valued at Rs4,000 crore will continue and will be converted into equity at the end of 20 years. 
Further, at the end of 20 years, RIL has the right to acquire equity shares of PIPL held by the InvIT at an equity value of Rs50 crore.