GAIL eyes project stakes, long-term deals

The government owned gas utility GAIL India Ltd is evaluating several proposals for equity stakes and long-term supply deals in the United States, Middle East and Southeast Asia, its chairman said on Saturday.

The company's strategy is part of the country's efforts to secure overseas energy supplies to satisfy rising domestic demand.

Gail signed a deal with the US-based Cheniere Energy in December to buy 3.5 million tonnes of LNG a year under a 20-year contract starting from 2017. It has been in talks with Macquarie Energy, which has a share in the US-based Freeport LNG project, and last year, agreed to buy a 20-percent stake in one of Carrizo Oil & Gas Inc's US shale gas assets for $300 million.

"There are many proposals we are discussing," GAIL chairman B C Tripathi told Reuters in an interview, adding these included projects in the United States, Middle East and Southeast Asia, but declining to give details.

On Friday, a consortium of GAIL and state-run oil producer Oil and Natural Gas Corp said it was still not out of the race for Africa-focused gas explorer Cove Energy Plc.

"We have support of government to look for the larger energy security of the country and look for gas supplies, whether it is through buying equity, or through long-term contracts," Tripathi said.

India, Asia's third-largest economy, is already the world's eighth-largest importer of liquefied natural gas (LNG). Those imports could rise five-fold in the next decade as its domestic gas output falls and demand surges.

Problems at the D6 block off India's east coast, operated by Reliance Industries, have curtailed output while ONGC is struggling to arrest declining production from its ageing fields, forcing up imports of expensive LNG.

India needs gas to help power its electricity generation, fertiliser sector, city gas distribution and for its expanding industries.

No share buyback
GAIL, which is gradually stepping up from its primarily gas transmission portfolio to emerge as a major petrochemicals and LNG player in the local market, is looking to spend 300 billion rupees on capacity expansions over the next four years, Tripathi said.

India allowed cash-rich state companies to buy back shares and acquire stakes in other state firms earlier this month, intended to help the government's faltering divestment plan and narrow its widening fiscal deficit.

Tripathi, however ruled out any share buyback by GAIL.

"GAIL doesn't have the option to invest in buybacks because we have a huge capex plan and we are investing in projects to build prospective capacity for the country," he said. "There is no appetite for GAIL to buy back."

GAIL plans to boost its petrochemicals capacity in the next three years, increase gas transmission capacity by 50 per cent and commission a new LNG terminal at Dabhol on India's western coast in the coming months. It is aiming to grow revenue at 20 to 25 per cent for the next few years, Tripathi said.

The company plans to raise nearly half of its capex requirements through debt. It is looking for further borrowings from the international market through external commercial borrowings and export credit agencies. It plans to raise around $100 million through a bond issue in the next few months, he said.

GAIL also said it is evaluating options for its eight per cent stake in Chinese gas utility China Gas Holdings, which is at the centre of an unsolicited $2.2 billion bid from China Petroleum & Chemical Corp (Sinopec) and ENN Energy Holdings.

GAIL, which acquired the stake in 2005, has not yet taken a final decision on the matter, Tripathi said.

"There is no offer as such, but we have received some information. Depending on what kind of options are available with us and how it pans out, we will take a decision," he said.

Shares in GAIL, which has a market value of $9.1 billion, closed up 2.2 per cent on Friday in Mumbai.

The stock is down four percent this year, lagging a 12 percent rise in the main stock index.