Bid & Tender
India’s PNG Ministry Seeks Approval to Split GAIL Business

Date : Feb 14, 2020

The Union Ministry of Petroleum and Natural Gas has moved a cabinet note seeking approval for hiving off state-owned gas utility GAIL (India) pipeline business into a separate entity for a possible sale to a strategic investor at a later date.

 

GAIL (India) owns more than 70 percent of the country's 16,981 km pipeline network. The core business after the bifurcation will be the marketing of natural gas and petrochemical production. It will have to hire capacity on pipelines from the subsidiary and pay regulator approved tariffs for the same.

 

The company will continue to execute the gas sales agreements it has already signed and will be responsible for discharge of the obligation under purchase pacts including for import of LNG.

 

The Union Ministry in January 2020 floated a note for consideration of the Union Cabinet for transferring the pipeline business into a 100 percent subsidiary. The proposal involves separating the accounts of the pipeline division as well as transferring employees directly connected with the pipeline operations to the new subsidiary.

 

After the Union Cabinet approval, a consultant will be appointed to transfer the pipeline business into a separate subsidiary. This will take eight-10 months to accomplish. The pipeline subsidiary may be sold off to a strategic investor but the sale is not likely before 2022.

 

The government had recently approved viability gap funding (VGF) for a gas pipeline grid in the North-East which a consortium comprising GAIL (India) and other state-owned firms will be executing.

 

GAIL (India) will continue to own the marketing business as also the stakes in liquefied natural gas (LNG) terminals after the split. Previously, the government was considering transferring marketing business into a separate subsidiary for a sell-off at a later date, but now a hive off of the pipeline business is being considered.

 

Post-2022, the pipeline business can be sold to a strategic investor such as Canadian asset management company Brookfield that recently bought 1,480 km pipeline owned by Reliance Industries (RIL). 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 (India) already keeps separate accounts for its gas pipeline and marketing businesses, making it easier to split them into two entities.

 

By unbundling GAIL (India) and opening the sector, the government hopes to increase gas use to 15 percent of the energy mix by 2030 from the current 6.2 percent. It also owns a petrochemical plant at Pata in Uttar Pradesh. The government has 54.89 percent stake in GAIL (India).