Cabinet Said To Consider Proposal To Hive Off GAIL’s Pipeline Business
A motorist travels under an LPG pipeline near the Jawaharlal Nehru Port, operated by Jawaharlal Nehru Port Trust, in Navi Mumbai, Maharashtra, India. (Photographer: Dhiraj Singh/Bloomberg)

Cabinet Said To Consider Proposal To Hive Off GAIL’s Pipeline Business

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The Union Cabinet may, by November, consider a proposal to hive off GAIL (India) Ltd.’s pipeline business, but its sale to a strategic investor may not happen before 2022, people privy to the development said on Tuesday.

Government-owned GAIL is India's biggest natural gas marketing and trading firm and owns more than two-thirds of the country's 16,234-km pipeline network. Users of natural gas have often complained about not getting access to GAIL's 11,551-km pipeline network to transport their fuel. According to the people cited above, GAIL’s bifurcation is being considered to address this issue.

A proposal is likely to be moved before the Union Cabinet for transferring the pipeline business into a 100 percent subsidiary, the people said, adding that the proposal may be considered and approved by the Union Cabinet in October or by November.

After the cabinet approval, a consultant will be appointed to transfer GAIL’s pipeline business to a separate subsidiary. This would take 8-10 months to accomplish, they said.

But selling off the pipeline subsidiary to a strategic investor is not likely before 2022 as the government is of the opinion that India’s gas market won’t mature till then. State support would be needed to build a national gas pipeline grid. GAIL will continue to own the marketing business as well as stakes in liquefied natural gas terminals.

To be sure, the government was considering transfer of the marketing business into a separate subsidiary and sell it off at a later date, but now a hive-off of the pipeline business is being considered.

GAIL has multiple long-term contracts to import LNG from countries such as the U.S. and no strategic buyer would like to take the responsibility of those, particularly when the fuel is available at a cheaper price in the spot market, the people said.

GAIL already keeps separate accounts for its gas pipeline and marketing businesses, making it easier to split them into two entities.

Post 2022, the pipeline business can be sold to a strategic investor, which will operate the pipelines and give access on a non-discriminatory basis to any entity wanting to transport gas either from a natural gas field or an LNG import terminal to consumers.

By unbundling GAIL and opening up the sector, the government hopes to increase gas use to 15 percent of the energy mix by 2030 from the current 6.2 percent.

According to the people cited above, the union oil ministry has not been very happy with GAIL's performance in building the pipeline network. Besides, there is a possible conflict of interest in its role as an infrastructure provider and carrier. GAIL did not start executing the Rs 12,940 crore Jagdishpur-Haldia and Bokaro-Dhamra pipeline until the government agreed to give 40 percent of the project cost as a grant from the budget.

When talk of a split first started in January 2018, Union Oil Minister Dharmendra Pradhan had stated that GAIL should focus on laying pipelines, suggesting hiving-off of the marketing business.

Indian Oil Corporation Ltd. and Bharat Petroleum Corporation Ltd. had in 2017 evinced interest in acquiring GAIL to expand their gas marketing business. Bifurcation plans were discussed more than a decade ago as well but these did not materialise.

Incorporated in August 1984 by spinning off the gas business of Oil & Natural Gas Corporation Ltd., GAIL at present owns and operates over 11,500-km of natural gas pipelines in India. It sells around 60 percent of natural gas in the country.

The company had in the past resisted the split on grounds that it's gas marketing and pipeline businesses operate at arm's length and hence do not need to be separated.

GAIL's marketing business formed 76 percent of its 2018-19 total sales and about 30 percent pre-tax profit. The government has a 54.89 percent stake in GAIL India.

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