The oil ministry is eyeing the InvIT (Infrastructure Investment Trust) the route to monetise pipelines worth about Rs 60 billion built by India’s largest gas utility GAIL, charting a new course for raising funds for the government as the pandemic spooks big-ticket disinvestments such as of Bharat Petroleum.
Discussions on InvIT are on in the ministry in parallel to preparations for carving GAIL’s countrywide gas pipeline network into a fully-owned subsidiary. The ministry may seek Cabinet approval, although technically the GAIL board can decide to divest stake in pipelines through InvIT.
The Dabhol-Bengaluru and the Dahej-Uran-Panvel pipelines will be the first to be monetised. “There could be gradual dilution, say in tranches of 10-20% stake, to begin with, but GAIL will retain majority stake,” one official said.
GAIL will be the second state-run entity to dilute stake in projects through InvIT. The power ministry had in September 2020 secured Cabinet approval for PowerGrid to monetise transmission lines worth Rs 71.46 billion via InvIT.
Under the InvIT route, the parent company gets the proceeds and the government makes money through capital gains tax etc. In case of public sector projects, the government, as the owner, can additionally demand higher dividend from the parent.
The InvIT route fits well with GAIL’s bifurcation, after which the parent will continue to market gas and build pipeline connectivity. The subsidiary will operate the transportation network and continue to raise funds by monetising minority stake in pipelines. The government will retain control of the infrastructure, considered strategic asset, through GAIL and an independent TSO (transport service operator) will manage 25% of the network capacity under the open access policy.
Typically, companies hive off projects to InvITs, or trusts formed to manage infrastructure assets, once they become operational and begin regular earning. This allows other investors in search of an assured return to step in, providing funds to the promoter for new projects.
The government had last year suggested the InvIT route to state-run entities as an alternative mechanism for raising funds to reduce dependence on government support. Indeed, around August last year, during presentations to PM Narendra Modi, his economic advisers had suggested assets monetisation as a way to cover a part of the higher spending needed for providing additional economic stimulus to revive growth.
