According to newspaper reports, BP-Amoco plans to enter into a Rs 40 bn joint venture with Indian Oil Corporation (IOC) and Gas Authority of India (Gail) to supply fuel to Indian power plants from the middle east. While BP-Amoco will hold a 50% stake in the venture, IOC and Gail will hold a stake of 24% each.
The move comes shortly after the announcement that IOC is considering strengthening its relationship with Gail. Currently, Gail and IOC own 10% of each other's equity.
As per the plan, BP-Amoco will work on a natural gas field in the middle east. The gas will be converted into liquid form at a plant that will be set up as part of the project. The gas will be transported to India in tankers and later distributed to power plants via pipelines. The techno feasibility report is being prepared currently.
While the move will mark the entry of BP-Amoco in a major way, the closer relationship between IOC and Gail seems to be of more significance. With IOC having stated that it will focus on the gas business in the future, a possible link up with Gail seems inevitable, notwithstanding the cold response from Gail.
With power sector reforms on the top of the government's agenda, demand for fuel is likely to rise significantly in the future. The tie up will gibe a boost to the power sector, which often faces an uncertainity regarding supply of feedstock. Moreover, given the environment friendly nature and cost effectiveness of gas as compared to other fuels, it is also a preferred fuel for the upcoming power projects.
A successful implementation of the project will give IOC the much-needed exposure to the gas sector, while Gail would be able to consolidate its leadership position in the Indian markets.
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