GAIL bifurcation plan put on hold by Oil ministry

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Gas Authority Of India Ltd. (GAIL) bifurcation plan is put on hold by the Ministry of Petroleum and Natural Gas. The state owned natural gas processing and distribution company was under a plan of divison in two broad sectors but due to financial shortcomings for the massive infrastructure building plan, the hold was initiated.

GAIL is India’s biggest natural gas marketing and trading firm and owns 60% of the country’s 26,284-km gas pipeline network, giving it a stranglehold on the market.

To resolve the issue, it was proposed that GAIL’s pipeline business should be hived off into a separate entity.

A ministry official involved in the decision making process said, “GAIL has massive plans to double its pipeline network to 34,000 km and there is a realisation that its ability to borrow funds to fund these should not be hampered.”

The government’s plan was to divide GAIL into two companies for gas transmission and marketing business and the state run company had entrusted Ernst &Young as a consultant for this. The move was seen as a step to bring more transparency into the country’s gas market.

Creating pipeline infrastructure, which will take the environment friendly fuel to unconnected places in the country, is key to the government objective of making India a gas based economy. The government is targeting raising the share of natural gas in its energy basket to 15% by 2030 from the current 6.2%.

GAIL is said to monetise some of its pipelines by selling a minority stake through instruments like Infrastructure Investment Trust (InvIT).

“The idea is transfer pipelines with steady revenue stream into a trust whose units can be sold to investors and the same can be traded on the stock exchange,” a source revealed, adding GAIL will upfront get money from such a sale that can be used for capital expenditure.

To start with, GAIL plans to monetise Dahej-Uran-Panvel-Dabhol pipeline and Dabhol-Bengaluru pipeline.

GAIL owns and operates a natural gas pipeline network that spans 15,673.3 kilometres, mostly in the western, southern and northern parts of the country. It is building more pipelines in the eastern part of the country. The government has a 54.89% stake in GAIL.

The bifurcation of GAIL was planned to address complaints of natural gas users about not getting fair access to the GAIL pipeline network to transport their fuel.

The conflict arising out of the same entity owning two jobs can be resolved with the setting up of an independent transport system operator (TSO), which will manage the common carrier capacity of GAIL and other pipelines in the country,