GAIL Might Get Split into Multiple Entities

The government is considering to split state-run gas utility GAIL (India) Ltd by hiving off its pipeline business into a separate entity and selling it off to strategic investors, sources privy to the development said.

Users of natural gas have often complained about not getting access to GAIL's 11,551-km pipeline network to transport their own fuel. The sources said that to resolve the conflict arising out of the same entity owning the two jobs, bifurcating GAIL is being considered. While previously selling of the marketing business, possibly to another state-owned firm, was being considered, the government is now mulling on hiving off the pipelines into a separate entity and selling off a majority stake in it, they said.

GAIL has multiple long-term contracts to import gas in its liquid form (LNG) from countries such as the US 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 or current market, the sources said. They said it is now being considered that GAIL continues with the marketing business that would include all the sale contracts as also city gas retailing.

The pipeline business can be spun off into a separate company, where the government may divest a majority stake to a strategic investor such as Canadian asset management company Brookfield that recently bought a 1,480-km pipeline owned by Mukesh Ambani's Reliance Industries (RIL).

The sources said the strategic partner 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. GAIL already keeps separate accounts for it's gas pipeline and marketing businesses, making it easier to split them into two entities. By unbundling GAIL and opening the sector, the government hopes to increase gas use to 15 per cent of the energy mix by 2030 from current 6.2 per cent.

When talk of splitting first started in January last year, Oil Minister Dharmendra Pradhan had stated that GAIL should focus on laying pipelines, suggesting hiving of the marketing business. The sale of a stake in pipeline business would help the government meet a part of its Rs 1,05,000 crore target for raising revenue from disinvestment in the year to March 31, 2020. Incorporated in August 1984 by spinning off the gas business of ONGC, GAIL owns and operates over 11,500-km of natural gas pipelines in the country. It sells around 60 per cent of natural gas in the country.

The sources said the oil ministry has not been very happy with GAIL's performance in building 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 per cent of the project cost as a grant from the budget. The pipeline takes the gas to Prime Minister Narendra Modi's constituency, Varanasi. Plans to split the company had been discussed more than a decade back too but it did not materialise.

The sources said refiners Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) had in 2017 evinced interest in acquiring GAIL to expand their gas marketing business. GAIL also owns a petrochemical plant at Pata in Uttar Pradesh, which too could be sold to either IOC or BPCL.

The company had in the past resisted the split on grounds that its gas marketing and transmission businesses operate at arm's length and hence do not need to be separated. GAIL's marketing business formed 76 per cent of its 2018-19 total sales and about 30 per cent pre-tax profit. The government has a 54.89 per cent stake in GAIL India. Its current market cap is Rs 65,600 crore.