The government is considering splitting 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. 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, giving it a stranglehold on the market.
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 its 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 percent of the energy mix by 2030 from the current 6.2 percent. 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 the pipeline business would help the government meet a part of its Rs 1050 billion targets for raising revenue from disinvestment in the year to 31 March 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 percent of natural gas in the country.