"In current times with multitude of game changing and disruptive forces playingout concurrently GAIL is rooted to its conviction to pursue National priorities ofstrengthening drivers of growth along the Natural Gas value chain."
Events that unfolded during the previous year both internationally and in India havethe potential to alter the structural landscape of the energy sector. The year has been aunique departure from earlier times of fossil fuel price compression as the commodityprice decline has coincided with a strong advocacy and emergence of clean energyalternatives at competitive levels with a promise of improvements along the cost curve.Sustained investments have led to the highest addition of renewable energy capacitiesmainly solar and wind in a single year. At the same time the surfeit production ofNatural Gas from shale in the USA accompanied by softer pricing power of the commodity hasseen significant shift towards gas based power generation as the nuclear power stationscontinue to be mothballed in large numbers. Ironically Japan witnessed restart of nuclearpower facilities and switch to alternative fuels leading to significant de-growth in theirLNG offiake during the period.
Interestingly for India there has been a serious policy push for expanding gas basedinfrastructure. Government of India (GoI) implemented measures in swiftness to increasePLF of gas based units and even helped revival of stranded power plants based on gas. Onthe retail side gas gained favour with a clear direction of being given a numero unopriority in domestic gas allocation for household and CNG segments. Gaining traction fromsuch policy measures the thrust shall be on improving penetration of Natural Gas as aclean and a choicest fuel in major cities and towns in the near term as a first stagestrategy. Along-side India has also volunteered to advance carbon based emission targetachievement to 2022 from 2030 and has embarked on a massive drive to augment renewablepower capacities of about 175 GW on the COP-21 framework. Exciting opportunities lay aheadfor Natural Gas to complement the targeted renewable power infrastructure. Progressiveintegration of such resource capabilities could lead to a demonstrable win-win situationfor all stakeholders.
These developments are in the larger backdrop of a year- on-year decline of 45-50% incrude oil prices and a weak growth of the global economy with downside risks playing out.Full impact of Brexit and China's debt levels with accompanied demand destruction is yetto unfold and sketchy at this stage. Although crude oil gained growth from demand sidewith an overhang in production and an evasive consensus among the OPEC member nationsalong with a wide chasm between OPEC and other crude producing counterparts the purchasepower balance remains shifted towards the buyers' club. Consuming economies are enthusedby this long awaited reprieve to strengthen their balance-sheets. On the LNG side newerlong-term contracting deals grazed around 24% signifying a predominant tilt towards spotand short term deals. Not very clear at this stage on the sustainability of softer pricestructure of energy commodities all it has resulted in is negligible investments intoconstruction of newer infrastructure facilities along the NG chain.
In current times with multitude of game changing and disruptive forces playing outconcurrently GAIL is rooted to its conviction to pursue National priorities ofstrengthening drivers of growth along the Natural Gas value chain with thrust on - Bulktrading & Retailing of NG simultaneous development of transmission networks andexpanding petrochemicals market with a wide range portfolio. The company continues toenjoy leadership position in the Natural Gas Trading and Transmission segments in Indiaand with a formidable portfolio of over 1.2 MMTPA polyethylene and polypropylene-basedpolymer segment in the country it is ready to offer broader grade slate for variousprocessing applications.
Globally LNG trade witnessed a growth of about 2% in step with the modest growth inworld economic activity by a tad over 3%. The continued decline in the commodity price hasbeen due to oversupply from newer projects and a weaker demand from the major consumingnations in Asia. These events accompanied by declining crude oil trade prices along with asurge in the non-long term trade volumes by about 29% during the period have led to afall in Asian spot LNG prices by nearly 50% over the previous year. Even though LNGimports by India remained stagnant at 14-7 MMTPA over the previous Calender Year yet itrecorded the sharpest increase in the spot and short term trades by clocking 3 MMTPA. TheLong Term Regas-LNG contract with the upstream suppliers was re-negotiated with thesupport of the nodal Ministry providing the much needed relief to the end consumers.Significant policy measures and schemes for enabling pooling of gas in the Fertilizersector and instituting a mechanism for e-bid based RLNG procurement for Power sector byGoI has provided fillip to the market sentiment. This is a monumental step in improvingRLNG consumption.
The year gone by also witnessed shifts in policy conversation around the clean energygoals and the need for adhering to INDC targets under COP-21 understandings towardsgreater reduction in carbon emissions by 2030. The ambitious targets of solar and otherrenewable power based expansion by 2022 for India provides a strategic opportunity tosynchronize gas power generation targets to ensure an un-interrupted grid supply forsupporting envisaged economic growth. Your Company is geared up to support GoI initiativesunder such integrative opportunities based on Natural Gas to contribute effectively inattaining climate change objectives.
A slew of structural economic measures and a healthy growth of the domestic market ledIndia to stand out as one of the fastest growing economies in the world during the lastfiscal year with a nominal GDP growth rate of 7.3% over previous FY The strong guidance byvarious external and internal sources projects strong economic performance in the currentfinancial year as well with about 7.5% growth year on year. In an environment of globaluncertainty and recessionary trend plaguing many advanced and emerging economies strongdomestic demand on the back of continued lower levels of commodity prices could contributein not just an uptick in the Indian GDP growth but shall also improve primary energyconsumption level including LNG characterized on price elastic demand.
Given the broader context of a turbulent operating environment in the sector with asluggish performance and outlook of global macro-economic activity having led to theglobal giants/peers witnessing on an average a reduction in revenue by over 35% andprofits being wiped out by over 90% to even posting losses GAIL has delivered a ROCE of8.92%. GAIL witnessed operating headwinds of tremendous magnitude during the period withRLNG consumers rejecting long term pricing structure drastic cutback in domestic NaturalGas allocation to petrochemicals manufacturing unit at Pata discounted marketing &transmission margins for incremental volumes under e-bid RLNG scheme for power sector 40%reduction in LPG prices a prolonged period of stabilisation of the petrochemicalsexpansion project accompanied by decreasing product prices have contributed to significantdownward pressures on earnings. In our commitment to delivering value even in suchchallenging times your Company's Board of Directors have declared a 55% dividend rate forFY 2015-16.
Turnover posted for the year (net of excise) was Rs. 51614 crores compared to Rs.56569 crores in the previous fiscal period. Profit Before Tax (PBT) for the year was Rs.3173 crores as against Rs. 4284 crores whereas Profit After Tax (PAT) clocked Rs. 2299crores vis-a-vis Rs. 3039 crores in the previous fiscal year.
As shared in the last year's report the journey under Project 'Sanchay' has beendiligently worked upon by the various business segments and many of the cost optimisationprojects identified are yielding results. Within the next three years progress isexpected to sequentially contribute about USD 140 million at today's cost factor and isduly recognised by the Company's Board. Several other initiatives such as ensuring stableand low cost supply of gas/RLNG to the petrochemical production are contributing towardsbetter margin.
In addition to progressing on the construction of the Jagdishpur/Phulpur-Haldia projectof 2050 kms. GAIL has integrated the Ranchi-Dhamra pipeline project for a phasedexecution by Q4 of 2019-2020. Board has also approved the Vijaipur-Auraiya-Phulpurpipeline for augmenting flow of gas to the expanded pipeline system upto Haldia. Pipelineprojects undertaken during the last 24 months to upgrade regional networks in KG andCauvery basins and Gujarat are under progress and the completion of Cauvery and KG Basinupgradation is expected during the current year. The thrust is on expanding last mileconnectivity to improve outreach to newer consumer segments and enhance retail customerbase for it is emerging to be a driver of growth in the gas segment.
During the year the subsidiary company Brahmaputra Cracker & Polymer Limited'spetrochemicals unit was dedicated to the nation and the product acceptability is beingcurrently established. Your Company's another subsidiary - GAIL Gas Limited - is focusedon City Gas Distribution (CGD) plays and has been progressing impressively in the newerterritories and potential markets of Bengaluru and Haridwar geographical areas. It hasrecently been awarded the North Goa geographical area for city gas business by theregulator.
Your Company has also joined the SPVs for coal gasification and urea manufacturingprojects under the revival plan of the Talcher based fertilizer unit of the CentralGovernment. Pre-project activities of technology selection for coal gasification andobtaining coal block allocation in the vicinity are underway.
Your Company is engaged in realizing the TAPI Pipeline project to receive Natural Gasfrom the Galkynysh fields in Turkmenistan. Progressing in this endeavor GAIL along withthe other stakeholders of the project entered into a Shareholders Agreement (SHA) of TAPIPipeline Consortium Limited SPV (TPCL) in December 2015 coinciding with the groundbreaking ceremony to commence laying the Turkmen leg of the TAPI pipeline. GalkynyshPipeline Company the consortium leader group led by Turkmengas will hold 85% equitywhile GAIL ISGS (Pakistan) and Afghan Gas Enterprise (AGE) will each partake 5% equityinTPCL.
SUSTAINABILITY AND SPREADING SOCIAL PROSPERITY
I am glad to share that your Company has been acknowledged among CDP's India Leaders2015 and is featured for second successive year under the Climate Disclosure LeadershipIndex (CDLI) leading to GAIL being the highest ranking Company amongst the country'sPublic Sector Undertakings under sustainability measures.
On the technological front your Company has aligned with the Government of India's"Digital India" initiative to launch Digital GAIL to integrate all processes andstakeholders with digital services. You can now connect and be a part of the Digital Indiacampaign through our recently-launched online platform GAIL Social.
Our social transformation projects have influenced more than eight hundred thousandlives in FY 2015-16. The preventive healthcare project extended to the various backwardareas around the Company's work-sites has provided preventive care and management tonearly half a million people. Through the flagship 'Utkarsh' programme we left anindelible touch on several economically deprived families by facilitating careeropportunities to their exceptional wards in senior school. We are as proud as the familiesof 94 out of 100 students who have qualified in the prestigious IIT/NITs and otherInstitutions of Technology under the model project 'Utkarsh'.
RECOGNITION & GRATITUDE
For the seventh year in a row your Company received "NIL" comments from theComptroller & Auditor General of India for FY 2015-16 reassuring best accountingpractices adhered by your Company.
It has been an ethos and endeavour of GAIL to foster mutually- rewarding and enduringrelationship with all its customers vendors partners stakeholders communities andregulators. In this endeavour GAIL has been ranked the Top PSU by Economic Times surveyculminating in 2015 on Rs. Best Companies for CSR- 2014' with an overall ranking positionat number 7 out of a study spanning 115 companies across more than twelve diverse sectors.
We also acknowledge the role of the central and state governments for their immensesupport towards improving our ecosystem and facilitating GAIL's pursuits in alignment withthe National goals of rapidly expanding clean energy markets based on Natural Gas at thevery core.
In these times of the industry cruising amidst a challenging environment globallyprudent financial and project management practices coupled with smart market penetrationstrategies and business models uniquely positions your Company in continuing to delivervalue to the shareholders' investment. The Board is steadfast in its commitment todischarge this underlying objective.
I thank you for your consistent faith in the value creation pursuits of your Company.
Chairman & Managing Director