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Economic Overview

Global Economy

The energy sector witnessed a slow growth last financial year due to decline in economic growth and the impact of COVID-19. Globally the year 2020 saw a decline in Global GDP by 4.36% vis-a-vis a growth of 2.9% in 2019. This slowdown was particularly evident in the US and India, as compared to the growth in 2019. However, prospects have improved over recent months with signs of a rebound in goods trade and industrial production becoming clear by the end of 2020. Global GDP growth is now projected to be 5.6% this year. World output is expected to reach pre-pandemic levels by mid-2021 but much will depend on the race between vaccines and emerging variants of the virus.

2020 was an unprecedented year for gas and liquefied-natural-gas (LNG) markets. Global natural gas consumption declined by an estimated 81 bcm (or 2.3% y-o-y) in 2020. Consumption in the industrial sector, which remained more or less resilient in 2020 with an estimated 1.2% annual decline, is expected to take the lead in 2021 with 5.4% year-on-year growth - close to 55 Bcm. Asia accounted for all the increase in LNG trade, by retaining a lions share of whooping 71% in global imports, mainly driven by China (12% rise) and India (15% rise).

In 2020, around 8 new LNG import terminals have been commissioned, bringing the total regasification capacity to 947 Million Tonne Per Annum ("MMTPA"), or 1,244 BCM per year, while global liquefaction capacity reached 454 million mt/year by year-end. These new import terminals are a mix of onshore terminals, floating storage and regasification units and small-scale facilities, mostly supporting existing import markets.

Global energy demand is expected to increase by 4.6% in 2021, more than offsetting the 4% contraction in 2020 and pushing demand above 2019 levels. Initial assessments suggest that global gas demand may grow by 3.2% y-o-y in 2021, slightly above the 2020 decline, thus enabling a recovery to the 2019 level, while global LNG trade is projected to expand by 4%, a slower pace relative to the 2015-2019 average annual rate of 10%. Global LNG shipping capacity is expected to increase by close to 10% y-o-y in 2021.

 

Indian Economy

As per Economic Survey 2020-21, Indias real GDP growth for FY22 is projected at 10.5%. The January 2021 WEO update forecast a 11.5% increase in FY22 and a 6.8% rise in FY23. IMF suggests in the next two years, India would emerge as the fastest-growing economy. The Natural Gas consumption (including internal use) in India was approximately 166 Million Standard Cubic Meter Per Day ("MMSCMD") in FY 2020-21.

The total consumption of natural gas saw a decline of about 3,300 Million Standard Cubic Meter ("MMSCM"). Though the LNG import declined by 3% as compared to previous year, the dependency on LNG imports continues to be on the higher side (54.2% in FY21 from 52.8% in FY20).

PIL Pipeline (1,480 Km) constitutes nearly 9% of the 17,126 km of operational Natural Gas Pipeline Network in India. In capacity terms, PIL pipeline constitutes 25% of the design capacity and contributes to nearly 7.8% of the total gas volumes transported in India.

As per the data released by Ministry of Commerce & Industry, the output of Indias eight core industries contracted by approximately 6.8% in March 2021 over the corresponding period of previous year. The cumulative decline during April 2020 to March 2021 has been 7%. Barring Fertilizers (rising 1.8%), the output of Coal, Crude Oil, Natural Gas, Refinery products, Steel, Cement & Electricity declined by 4.8%, 5.2%, 8.2%,

11.2%, 9.5%, 11.9% and 0.6% respectively, during April 2020 to March 2021 over corresponding period of the previous year.

Indias natural gas production rose above the pre-COVID level following the start of output from KG-D6 fields operated by Reliance Industries and its partner BP Plc. Indias energy demand is expected to increase more than that of any other country over the next two decades, overtaking the European Union as the worlds third-largest energy consumer by 2030. The natural gas requirement is projected to be more than triple to 201 billion cubic meters in 2040. As per the experts, the ongoing second wave might result in a short-term negative economic shock while the medium-term growth outlook shall remain stable.

Asset Overview

During the period under review and as on the date of this Report, the Trust (along with its 6 Nominees holding 1 share each) holds 100% of the issued equity shares of Pipeline Infrastructure Limited. The Trust has only one asset i.e. the PIL Pipeline.

Pursuant to the Scheme of Arrangement between East West Pipeline Limited ("EWPL") and PIL, as sanctioned by National Company Law Tribunal, Mumbai Bench and Ahmedabad bench, vide their respective orders dated December 21, 2018 and November 12, 2018, pipeline business comprising an asset value of Rs. 17,050 Crore and liabilities of Rs. 16,400 Crore was transferred from EWPL to PIL as a going concern in FY 2018-19. The Trust acquired PIL in March 2019.

PILs principal business is operation of the Pipeline for transportation of natural gas for the benefit of its customers. In June 2019, PIL received the approval of Petroleum and Natural Gas Regulatory Board ("PNGRB") for transfer of authorization for the Pipeline in its name.

The Pipeline was put into commercial operation in April 2009 and prior to the effectiveness of the Scheme of Arrangement, was owned and operated by EWPL. The Pipeline was designed, constructed and commissioned to respond to the opportunity presented by the discovery of natural gas reserves in the KG Basin. Construction on the Pipeline began in the financial year 2007 and was completed in the financial year 2009.

The trunk pipeline owned by PIL is 48" in diameter and 1,375 Km in length, and traverses five states from Kakinada in Andhra Pradesh to Bharuch in Gujarat, with design capacity of 85 MMSCMD. Interconnects/spur lines have been installed for delivering gas to the customers either directly or through third party networks, with a cumulative length of interconnects/spur lines of approximately 105 Km. All tie-ins/terminals have been provided with ultrasonic type of metering systems along with pressure regulation/control and gas quality measurement systems. The 48 inch uniform diameter steel pipeline is externally coated with 3 LPE (three-layer polyethylene), internally coated with epoxy lining for flow improvement, helical submerged arc welded and longitudinal submerged arc welded. Impressed current cathodic protection system has been provided to supplement the coating system for protection against external corrosion. The pipeline has 11 Compressor Stations ("CS") along the length to compress and deliver gas.

PIL Pipeline is the countrys first bi-directional pipeline, interconnected to major pipeline networks such as HVJ/DVPL in Gujarat, DUPL in Maharashtra and KG Basin network in Andhra Pradesh (owned and operated by GAIL (India) Limited), Gujarat State Petronet Limited ("GSPL") pipeline in Gujarat as well as GSPL India Transco Pipeline in Andhra Pradesh. In addition, the pipeline is connected to a few direct customers including 10 CGD customers. Further, PIL Pipeline is connected to various domestic gas sources such as KG-D6 gas block operated by Reliance Industries Limited ("RIL") as well as ONGC gas fields on the east coast and to LNG terminal operated by SHELL Energy India Private Limited in the state of Gujarat, in west coast. The Pipeline also transports gas from LNG terminals at Dahej and Dhabol through inter-connected pipelines of GAIL and GSPC.

PIL Pipeline is an important link in the development of Indias national gas grid. PILs customers are as diversified as Refineries, Fertilizers, Petrochemicals, Power and City Gas Distribution.

 

Operational Performance

The Pipeline system has crossed the mark of 116.15 Billion Standard Cubic Meter ("SCM") cumulatively for gas transportation, since commencement of operations in 2009. The Pipeline delivered 4.21 Billion SCM during the year without any interruption or business loss. System Use Gas as a percentage of total gas delivered was 0.83% against 1.18% target (normalized i.e., based on revised projections of KGD6) and Unaccounted for Gas was 0.034%, against the benchmark of 0.10%. The Pipeline transported a volume of 11.53 MMSCMD as compared to 18.78 MMSCMD in FY 2019-20.

Majority of PILs income on a combined basis is from the receipt of gas transportation charges from its customers pursuant to gas transportation agreements. This is based on actual receipts by PIL. Other operating income comprises of income from deferred delivery services relating to storage of gas in the pipeline and income received in relation to hook-up facilities provided by PIL.

The Pipeline capacity utilization for the financial year, based on the design capacity, has been 14.25% compared to the industry average capacity utilization of 22.25%# (#Ready Reckoner, PPAC, September 2020. Includes pipelines which are operational and under construction).

PIL successfully executed several new projects during the last financial year. In FY 2020-21, PIL completed 9 projects of connecting PIL pipeline with the upcoming City Gas Distribution ("CGD") Networks and industrial unit abutting the pipeline ahead of customers readiness, with 2 CGD connectivity project completion planned for FY 2021-22. Out of the 9 completed connectivity projects 4 have started gas flow. The construction activity for hooking up new fields of ONGC at Mallavaram in Andhra Pradesh is under progress. In accordance with the court mandate to use natural gas in ceramic units, PIL transported higher volume of gas for GSPL in Rajkot, Gujarat. Synchronously, strong demand from refinery led to higher RLNG volumes. Modifications made at CS01 for handling gas receipt from multiple sources under different pressure regimes have been commissioned with commencement of R-series gas. Bi-directional flow feature of the pipeline has been made operational at CS06 and CS03 which enable additional DDS accumulation and revenue thereof. Additional Scrubber installed at CS10B for handling higher gas flows anticipated. Control Room was shifted from RCP to CS08 in order to ensure uninterrupted operations amidst the pandemic.

To attain greater operational efficiency, PIL performed technology upgradation activities during the year. SCADA system upgradation with latest hardware/OS completed at new POCs (Seawoods and CS 04) and all other Installations of pipeline in order to mitigate operating system obsolescence and to improve system reliability. Population Density Survey (PDS) was completed for entire PIL pipeline (1468 KM). Pipeline class locations were revised based on the survey results and HCA locations were revised accordingly. Mitigation measures such as installation of concrete slabs, implementation of Pipeline Intrusion Detection System are being planned and will be implemented in phases. Close Interval Potential Logging (CIPL) Survey for checking the effectiveness of CP system and Direct Current Voltage Gradient Survey (DCVG) survey for checking the coating integrity are under progress for entire pipeline.

 

Financial Performance

The global outbreak of COVID-19 pandemic continues to scourge economic activity. Financial year ended March 31, 2021 was PILs second full financial cycle since it was incorporated on April 20, 2018 and business was operative from July18 to March19 during FY 2018-19. PIL considered internal and external information while finalizing estimates in relation to its financial statement and has not identified any material impact on the carrying value of assets, liabilities or provisions.

Brief details of financial performance of PIL for the financial year ended March 31, 2021 are as under:

(Amount in Rs. Crore)

Particulars	Year ended March 31, 2021	Year ended March 31, 2020
Turnover	1,791.73	2,407.14
Other Income	29.58	32.95
Total Income	1,821.31	2,440.09
Profit/(Loss) before Tax	(1,190.74)	(2,561.37)
Less: Current Tax	-	-
Deferred Tax	-	-
Profit/ (Loss) for the year	(1,190.74)	(2,561.37)
Add: Other Comprehensive Income	(0.01)	0.18
Total Comprehensive Income for the year attributable to the owners of the Company	(1,190.75)	(2,561.19)

During the financial year 2020-21, PIL transported an average ~11.99 MMSCMD (at gross conversion value of 38,036.38 BTU per SCM) of gas volume and earned a transportation revenue of Rs. 1,250.98 Crore, including the revenues under Parking Services and Deferred Delivery Services ("DDS") which PIL offered as value added service to customers. Availability and Reliability of equipment was above 98%, as a result of prudent maintenance.

EBIDTA for the FY 2020-21 is Rs. 1,024.72 Crore as against Rs. 1,296.92 Crore for FY 2019-20 (excluding fair value loss on Non-Convertible Debentures measured at Fair Value). APTEL upheld the submissions made by PIL in the Capacity Matter against PNGRB and direction was issued to declare PIL pipeline capacity, after considering changes in operating parameters; a favorable step toward PIL Pipeline tariff.

 

Health, Security, Safety and Environment

PIL emphasizes on and considers its top priority for the safety and health of employees, contractor workforce and community at large and expects every person to go home without any harm every day and continue our journey of GOAL ZERO - NO HARM & NO LEAKS. PIL is committed to the governing principles that every HSSE incident including any occupational injury and illness is preventable. HSSE is every ones responsibility and every employee and contract worker (together referred to as "Employees") is an HSSE leader. All Employees are accountable for organizations HSSE performance and are responsible for adoption of HSSE policies, practices, and procedures. It is the duty of all Employees to stop any unsafe work or activity. PIL is committed to conducting its business in a safe, reliable, and compliant manner and preserving the environment.

HSSE performance for the pipeline operations was the best of all years since inception. There were no serious safety, security, health, and environment incidents during the year under review. However, 10 high risk (potential) incidents were reported. All high risk (potential) incidents including near-miss incidents were investigated, and recommendations are being tracked till closure. It was a Lost Time Injury free year. As on March 31, 2021, PIL completed cumulative 12.4 safe million man-hours and 1867 days without Loss Time Injury incident. HSSE score for the year 2020-21 was 93.12% as against the target of 90%. HSSE culture survey was conducted across all the sites & Head Office of PIL. 80% (220/256) Employees and 82% (169/205) technical contractor workers participated in the survey. Employees survey results shows PILs safety culture is moving from pro-active to Generative safety culture (60% by Employees and 57% by Contractor staff).

In February 2021, the Pipeline Business was re-certified to Quality Management System (ISO 9001:2015), Environment Management System (ISO 14001:2015) and Occupational Health & Safety Management System (ISO 45001:2018) by M/s. Bureau Veritas India Private Limited consecutively for 4^th time.

PIL has also been awarded "Certificate of Appreciation" Safety Awards- 2020 organised by M/s national Safety Council, India.

PIL has been presented with "International Safety Award 2020-21" by British Safety Council. It is an award that honoured our commitment to safety, health and wellbeing during most challenging year.

Off-site emergency mock drills were organised in the area jurisdiction of CS02 and CS03 in presence of statutory, regulatory, and administrative authorities. Both the drills were highly appreciated by authorities for excellent planning, preparedness, and response to mitigate the emergency.

 

Future Business Outlook

With the fast-changing business scenario, PIL will continue to build a strong business portfolio and identify growth opportunities to ensure that our stakeholders look back at us with pride. Indias first Natural Gas Trading Platform was launched by IGX in June 2020. Maiden transaction at KG Basin Hub concluded, wherein PIL Pipeline was used for transporting gas, on November 4, 2020.

In collaboration with tariff regulatory bodies, PIL is pursuing tariff regulation reforms to increase the share of natural gas in the energy mix. With PIL being connected to major networks players such as GAIL and GSPL, and to all major sources on east & west coast like RIL/ONGC/upcoming RLNG terminal, it is well positioned to cater to all demand centers located pan India. PIL is in the process of evaluating gas transportation agreements with potential customers from upcoming new fields on the east coast and connectivity opportunities with new CGD entities, providing viable and sustainable growth opportunities in the near future.

Trusts holding in PILs Debt Capital

On March 22, 2019, PIL had issued and allotted 12,95,00,000 - unlisted, secured, redeemable, non-convertible debentures of face value of Rs. 1,000 each, aggregating to Rs. 12,950 Crores, on private placement basis ("NCDs"), to the Trust, from which the Trust derived interest income. The said NCDs have been issued for a term of 20 years from the date of allotment.

On April 23, 2019, PIL had redeemed 6,45,20,000 NCDs of Rs. 1,000 each aggregating to Rs. 6,452 Crores, at par, out of 12,95,00,000 NCDs issued on March 22, 2019. The proceeds from the redemption was utilised by the Trust to redeem the Trust NCDs.

Further, during the year under review, pursuant to the mutual agreement between the Trust and PIL, and in line with the terms of issuance of the aforesaid NCDs, PIL had made payment of an aggregate amount of Rs. 208.77 Crores as Principal, from time to time, towards partial re-payments of the remaining 6,49,80,000 NCDs of Rs. 1,000 each, thereby proportionately reducing the face value of NCDs.

Accordingly, as on March 31, 2021, the face value of the remaining 6,49,80,000 NCDs of Rs. 1,000 each has been reduced to Rs. 922.42 each (as on the date of this report Rs. 911.48 each).

During the year under review, the Trust has earned Rs. 715.97 Crores as interest income from PIL.

Details of revenue during the year from the underlying project

Majority of PILs income is from the receipt of gas transportation charges from its customers pursuant to gas transportation agreements. Other operating income comprises of income from deferred delivery services and parking services relating to storage of gas in the Pipeline and income received in relation to hook-up facilities provided to customers.

During the financial year ended March 31, 2021, average daily flow of natural gas through PIL Pipeline was 11.99 MMSCMD (at gross conversion value of 38,036.38 BTU per SCM). During the financial year 2020-21, PIL generated a revenue Rs. 1,791.73 Crores from its operations and Rs. 29.58 Crores as interest and other income.

FINANCIAL INFORMATION AND OPERATING EXPENSES OF THE TRUST

Summary of Audited Standalone and Consolidated Financial Information of the Trust for the financial year ended March 31, 2021, is as follows:

(Amount in Rs. Crore)

Particulars	Financial Year ended March 31, 2021		Financial Year ended March 31, 2020*
	Standalone	Consolidated	Standalone	Consolidated
Total Income	795.96	1,824.99	2,486.50	2,444.14
Total Expenditure	17.71	2,250.48	145.71	2,674.89
Profit / (Loss) before tax	778.25	(425.50)	2,340.79	(230.75)
Less: Provision for tax	-	-	-	-
Current tax	1.58	1.58	1.73	1.73
Deferred tax	-	-	-	(23.00)
Profit/(Loss) for the period	776.67	(427.07)	2,339.06	(209.48)
Other comprehensive income	-	(0.01)	-	0.18
Total comprehensive income/(loss) for the period	776.67	(427.08)	2,339.06	(209.30)

* Previous year figures are restated and regrouped wherever necessary.

Key operating expenses of the Trust for the financial year ended March 31, 2021, are as follows:

(Amount in Rs. Crore)

Particulars	Financial Year ended March 31, 2021	Financial Year ended March 31, 2020
Investment Manager Fees	2.83	2.83
Legal, Professional and advisory fees	0.62	11.38
Trustee Fee	0.21	0.21
Demat Charges	0.41	0.44
Valuation Expenses	0.18	0.61
Listing fees	0.12	0.09
Project Manager Fees	1.77	1.77
Custodian Expenses	0.10	0.13
Duties, Rates and Taxes	-	0.10
Bank Charges	0.01	-
Payment to Auditors	2.36	2.28
Other expenses	0.04	0.07
Total	8.65*	19.91**

 

* Does not include loss on fair valuation of call/put option Rs. 9.06 Crores.

** Does not include Interest paid Rs. 37.24 Crores on Debentures, loss on sale of Debentures Rs. 82 Crores and loss on fair valuation of call option Rs. 6.78 Crores and fair valuation gain on put option of Rs. 0.22 Crores.

Audited Standalone and Consolidated Financial Information of the Trust for the financial year ended March 31, 2021 along with the Report of Auditors thereon form part of this Annual Report.

DETAILS OF UNITS ISSUED BY THE TRUST

The Trust had issued 66,40,00,000 units at an Issue Price of Rs. 100 each aggregating to Rs. 6,640 Crores on March 18-19, 2019, which were listed on BSE Limited w.e.f. March 20, 2019.

Pursuant to the Return of Capital as a part of distributions made by the Trust from time to time during the period under review, the issued unit capital of the Trust as on March 31, 2021 is 66,40,00,000 units of Rs. 84.0461 each aggregating to Rs. 5,580.65 Crores and as on the date of this Report is 66,40,00,000 units of Rs. 82.0445 each aggregating to Rs. 5,447.75 Crores.

During the year under review and as on the date of this Report, no units have been issued or bought-back by the Trust.

SUMMARY OF THE VALUATION AS PER THE FULL VALUATION REPORT AS AT THE END OF THE YEAR

Pursuant to the approval of the unitholders of the Trust, M/s. BDO Valuation Advisory LLP, Registered Valuers (IBBI Registration Number: IBBI/RV-E/02/2019/103) ("Valuer"), were appointed as the Valuer of the Trust to carry out the valuation of Trust Assets for the FY 2020-21 in accordance with SEBI InvIT Regulations.

In terms of the provisions of Regulation 10 of the SEBI InvIT Regulations, the Valuation Report dated May 26, 2021 for the financial year ended March 31, 2021, issued by the Valuer of the Trust, has been filed with BSE Limited on May 27, 2021 and the same is also available on the website of the Trust at www.indinfratrust.com. The Valuation Report is also attached as Annexure A to this Report.

As per the Valuation Report, InvIT Asset has been valued using Discounted Cash Flow ("DCF") Method under Income Approach. Free Cash Flow to Equity model under the DCF Method has been used to arrive at the value of InvIT Asset.

The tariff of Rs. 71.66 per MMBTU as approved by PNGRB vide order dated March 12, 2019 has been considered for valuation of InvIT Asset.

The enterprise value of Trust Asset attributable to the Trust pursuant to the agreed terms of the Transaction Documents is arrived at Rs. 14,526.85 Crores.

VALUATION OF ASSETS AND NET ASSET VALUE ("NAV")

Pursuant to the provisions of Regulation 10 of the SEBI InvIT Regulations, the NAV of the Trust was computed based on the valuation done by the Valuer and the same has been disclosed as part of the Audited Financial Information of the Trust filed with BSE Limited on May 27, 2021 and is also available on the website of the T rust at www.indinfratrust.com.

Standalone Statement of Net Assets of the Trust at Fair Value as at March 31, 2021 is as under:

(Amount in Rs. Crore)

Particulars	Financial Year ended March 31, 2021		Financial Year ended March 31, 2020
	Book Value	Fair Value	Book Value	Fair Value
A. Assets*	7,527.98	8,043.37	7,912.44	8445.08
B. Liabilities at Book value**	60.22	60.22	51.83	51.83
C. Net Assets (A-B)	7,467.76	7,983.15	7,860.61	8393.25
D. Number of Units (No. in Crore)	66.40	66.40	66.40	66.40
E. NAV per Unit (C/D)	112.47	120.23	118.38	126.40

 

*Assets includes the Fair Value of the Enterprise Value attributable to the invil as at March 31, 2021 including book value of invil assets. Assets are valued as per valuation reports issued by independent valuers appointed under the inviTRegulations and as per ind as.

** Liabilities include book value of inviT liabilities.