India : GAIL’s massive gas pipeline network will be moved to a subsidiary. Here’s why this big step is being taken

GAIL has a pipeline network of 11,400 km in India accounting for three-fourths of natural gas transmission.

Gas marketer GAIL (India) has started the work to transfer one of its business verticals — pipelines and marketing — into a subsidiary of the parent company and has already hired a consultant to work out the options, two sources close to the development told FE.

“Both options —either to make transmission a subsidiary and retain marketing as the main company or the other way around — are being evaluated to see which one works out,” said one of the sources, adding there are internal teams also working along with a third-party to assess the options available and legal nitty-gritties involved.

The company will be creating a subsidiary, same as GAIL Gas, which operates the city gas distribution business, in order to put the marketing and pipelines businesses at an arm’s length.

Earlier, the government was of the view that the company should concentrate on creating pipeline infrastructure which is its core responsibility and let go of the marketing vertical, as said by petroleum minister Dharmendra Pradhan last year.

However, in August this year, he had said GAIL will have to separate its marketing and pipeline businesses into two autonomous verticals and will have to maintain separate balance sheets. Pradhan had said the board of GAIL has taken cognizance of the fact that its primary responsibility is to create gas infrastructure in the country and the board has assured that the company will operate the two businesses at an arm’s length ‘without any conflict of interest’.

Nevertheless, the company will shed its petrochemicals business.

GAIL has a pipeline network of 11,400 km in India accounting for three-fourths of natural gas transmission. It is also working to add another 5,000 km of pipelines which include the Pradhan Mantri Urja Ganga Project which will connect the eastern and the north-eastern states.

The company, in August 2018, launched a portal to enable easy and transparent booking of common carrier capacity for transmission of natural gas through pipelines owned by GAIL.

“A perception was created that GAIL was prioritizing its own gas for transmission. Now it is for everybody to see available capacity and book,” said the source.

The premise for the company’s split earlier was Section 21 of the Petroleum and Natural Gas Regulatory Board Act which provides the downstream regulator with the responsibility that infrastructure and marketing arms of state-run utilities should be separated and this can be implemented through regulations.

However, this requires the gas market to be mature and 15% of the energy mix should have gas. India’s gas usage is around 6.5% of total energy consumed.

The source quoted above added that accounting for pipelines and trading businesses are already done separately. The company earns 70% of its revenue through marketing whereas 40% of profits come from the natural gas transmission business.

Separating the marketing business of GAIL and selling it was one of the options that was being reportedly considered by the government to achieve its disinvestment target of Rs 80,000 crore for the current financial year. By the end of two quarters, the government has been able to disinvest a meagre around Rs 10,000 crore.

 
 
Source : https://www.financialexpress.com/industry/gail-kicks-off-process-to-create-subsidiary/1339460/

Smart Grid Bulletin September 2018


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