GAIL - A true blue Navratna

Gas Authority of India Limited (GAIL) is the No.1 Indian Gas company. The government of India had given the status of Navaratna to the company and has disinvested its partial stake in the company in 1999. GAIL is one of the companies which had tremendous growth during and after the government control. The company is now planning to go for equity stake in the foreign multinationals thus moving to be an international oil major. How did the company grow? Why is it going for the foreign stake?

GAIL is the largest Indian company in the downstream gas sector handling diverse post exploration and production activities relating to Natural Gas viz. transportation, processing, distribution and marketing of gas and its fractions and by-products. GAIL has won the 'Excellent Performance Award' for five consecutive years, and many safety awards from the OISD and British Safety Council. It has ISO 9002 certification for its pipeline system and LPG plants, and also ISO 14001 for HBJ Vijaipur and the Vaghodia LPG plant.

GAIL has six LPG Plants – two at Vijaipur (with a capacity of 2,03,000 MT of LPG and 66,000 MT of Propane) and one at Vaghodia (73,000 TPA of LPG). GAIL's other plants include LPG Usar(Maharastra - 139,000 TPA), LPG Auraiya(U.P. - 258,000 TPA) and LPG Lakwa(Assam - 75,000 TPA). The company is setting up one more plant with a capacity of 200,000 TPA of LPG and other liquid hydrocarbons at Gandhar (Gujarat).

GAIL has a pipeline network of over 4000 km passing through Mumbai, Gujarat, Rajasthan, Andhra Pradesh, Tamil Nadu, Pondicherry, Assam, Tripura, Madhaya Pradesh, Haryana, Uttar Pradesh and Delhi catering fuel to power plants for generation of over 4,000 MW of power; to fertilizer plants for production of 10 million tonnes of urea and to several other industries. The company has the world's longest LPG pipeline - 1230 km for the transportation of LPG from Kandla (Gujarat) to Loini (near Delhi) to transport 2.5 million TPA of LPG at a projected cost of Rs.12.30 billion, which is likely to get over by April 2001. The company transmits approximately 95% of the total amount of Natural Gas transmitted by pipelines in India.

Apart from its pipe line, GAIL also has joint venture companies for supplies to households, commercial users and for the transport sector areas :

Mumbai and Delhi distribution companies are joint Venture projects of GAIL with Mahanagar Gas Limited (a joint venture company promoted by GAIL and British Gas, UK) and Indraprastha Gas Limited (joint venture of GAIL and BPCL).

In 1999, government disinvested some of its stake giving autonomy. By cross holding strategy in the oil sector companies, Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC) picked up 2.5 per cent equity each in GAIL. Another 5 percent equity of GAIL was divested through an offering in the market.

GAIL also issued its GDR issue of 140 million shares to investors with a green-shoe option of 20 million shares. The offer was made to international investors in Europe, Asia and the US.

GAIL has been constantly strengthening its technology base and monitoring technology trends in its business. In 1998-99, the company spent about Rs.1,200 crore to strengthen its computer, communication and control systems to ensure state-of-the-art equipment and systems in this area.

GAIL has been a vision oriented company. The company expanded drastically with its diversifications. It entered Petrochemicals segment in 1999 with a Gas Cracker plant at Pata in Uttar Pradesh with an investment of Rs. 25 billion at a capacity to produce 300,000 TPA of ethylene.

GAIL was one of the lead agencies which had introduced Compressed Natural Gas (CNG) for the automotive sector. It has set up CNG stations in Mumbai, Baroda and Delhi, including online stations in Delhi, to facilitate the use of CNG. GAIL also produces Special Boiling Point (SBP) Solvents, Propane and Pentane. The company also made foray into coal bed methane (CBM) in 1998.

The company is also prepared itself to become an integrated energy company with suitable integration in the upstream and downstream sectors of the petroleum industry as well as generation of power. GAIL has promoted Petronet LNG, a joint venture company with ONGC, IOC and BPCL, which is setting up LNG terminals in Dahej and Cochin for import of LNG into India. GAIL is associated with various transnational Gas pipeline projects for import of Gas into India apart from LNG import projects. GAIL has also formed a consortium with Brown & Root for developing the project for Gas imports from the Eastern region.

GAIL is examining the options of importing gas from Bangladesh, Myanmar and Indonesia. The company is focussing on undertaking international projects preferably in the countries in West Asia, Central Asian Republics and South-East Asia in the areas of gas infrastructure development, gas processing etc. GAIL also had talks with Gas Prom of Russia for an alliance in exploration and production.

GAIL had talks with supply sources in Abu Dhabi and other Gulf states for natural gas. The company also has plans of entering into gas sourcing contracts with Yemen, Oman and Iran.

In Power industry, the company has deals with BSES for jointly promoting power projects. It also entered into strategic tie-ups with RPG Dholpur and STI for participation in its power projects.

GAIL also had plans to enter the telecom sector. The company plans to tie up with other major companies having access to right of way like Powergrid for providing a nation-wide integrated communication grid for telecom operators.

In August 2000, GAIL has plans to pick up equity stake in the gas liquefication plants abroad. The company stresses more on the companies in which GAIL is a partner. As of now, Petronet controls the purchase and regassification.

GAIL’s activities involving regassification, transmission and distribution is deprived of the full fledged supply chain, which also includes liquefication in the international companies. Thus, by having liquefication facilities, GAIL is targeting to reach the international standards in oil supply chain.

But, setting up liquefication plants would involve huge investments. This is because gas pricing by suppliers currently does not include liquefication and transportation costs. Liquefication is currently done at the source of supply and is a prerequisite for transportation by sea. Consequently liquefication involves an additional cost of the gas.

In 2000, GAIL is planning to set up three new LPG plants in South India with Rs.800 crore. The projects planned include one in Tamil Nadu with a capacity of over 58,000 tonnes per annum of LPG and two in Karnataka with a combined capacity of 1,50,000 tonnes per annum of LPG.

The company plans to meet this investment by debt. However, the company has strictly restricted the debt-equity ratio at 50:50 and the return on equity at 12%. So the adherence to this policy may need the company to raise the equity capital thus diluting the capital structure of the company.

In India, only eight per cent of the country's current energy supply is met by gas, compared to the world average of 24 per cent. With the increasing demand for LPG gas in household sector and the power projects shifting towards gas based turbines for the lack of proper water resources and increasing cost of coal and low efficient coal availability, the demand for gas is expected to grow substantially. With all the plants running efficiently and with the partnership agreements, the company would have good margin over the private sector and other government companies.

K.Venu Babu

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