GSPL: It`s the right place, right time

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GSPL already has an operational pipeline of 1,069 km in Gujarat. The K-G basin gas will help it achieve higher utilisation of the capacity, which will mean more profitability for the company.

According to Crisil data, the leader in the gas distribution business is of course Gas Authority of India (GAIL) with a pipeline length of 5,826 km, Reliance (1,100 km), followed by ONGC (1,079 km), Gujarat Gas Company (1,600 km), and GSPL. Reliance will use its pipeline for carrying its fuel. Gujarat Gas too uses the line to carry gas to Surat and Vadodara.

That leaves GAIL and GSPL to carry gas for others. While GAIL will move its own allotted gas from PMT and other fields, it is also open to carrying for others. GSPL, on the other hand, will carry gas for its parent, GSPC, and also others. Looking at the experience in Gujarat, it will give its larger competitor a run for its money.

Gujarat has been an early adapter. In 2000-2001, when GSPL wasn't around, GAIL carried the entire 20 mmscmd of gas. Today it carries 13 of the 40 mmscmd; GSPL carries 20.

How did GSPL do it? Just by pro-actively going to the customer and by pricing it cheaper than the Goliath. As a result, it has the largest pipeline in Gujarat, a satiated service, but gas-hungry clientele.

The arrival of the gas regulator has meant fresh challenges and opportunities. Prior approval of the regulator, Petroleum and Natural Gas Regulation Board (PNGRB), will be required to lay new pipelines and projects will be awarded on competitive basis. As volumes increase, the regulator may lower the tariff but still allow firms to earn the designated return on capital employed.

As for opportunities, firstly, the regulator will not allow the laying of a parallel pipeline. This protects the home turf of GSPL. If it wants to extend the already laid-out pipelines, it can bid competitively for the assignment. It can also move into the neighbouring states of Rajasthan and Madhya Pradesh, leveraging its existing pipeline in Gujarat as a feeder.

But the most important development may be that it could be allowed to earn higher returns. My understanding is that if the draft guidelines for the sector become the rule, it would be able to fix a rate that delivers 12 per cent returns on capital employed. GSPL currently enjoys less than 10 per cent returns.

Also, if the pricing is done on the basis of the project life cycle, counting returns over the useful period of the pipeline, the returns could be higher if you were to compensate for the low tariff years in the past. GAIL already does that. So its chances of being able to get better returns are remote. Though it may change later, GAIL has to bear the burden of under recoveries; GSPL does not.

Whether it is domestic gas from the PMT, KG, Cauvery or Mahanadi basins or imported LNG, it would need pipelines to ferry it to interior India.

According to an Assocham paper, Pakistan has a pipeline network of 56,400 km, more than five times ours. We have piped gas in just 25 cities. They have it in more than 1,000 centres. As the supply increases, the pipeline network will also rise in India. n

Disclaimer: GSPL has been recommended by Anagram since its IPO days and its clients, employees and their relatives may hold shares.