GAIL split plan scrapped, company to monetise pipelines instead

A proposal to bifurcate state-owned gas utility GAIL (India) Ltd has been scrapped for now, and instead the company will monetise some of its pipelines by selling a minority stake through InvIT.

GAIL Chairman and Managing Director Manoj Jain said the company has sent a plan for monetising two of its pipelines to the Ministry of Petroleum and Natural Gas and an Infrastructure Investment Trust (InvIT) is possible within the current fiscal if approvals come soon.

GAIL is India's biggest natural gas marketing and trading firm and owns nearly three-fourths of the country's 17,126-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.

"There is no pending proposal in this regard," Jain said at a call with reporters on the company's earnings.

He was asked about the fate of the plan to transfer the pipeline business into a new subsidiary, with GAIL holding the core business of marketing natural gas and petrochemical production.

"We are initially monetising through InvIT. Proposals for InvIT for two pipelines have been sent to the ministry. Once it clears, we will start working on monetisation plan," he said.

Asked if this meant that the split plan was junked, he said, "it appears so."

"We are going for the pipeline-wise route (for monetisation) instead of the entire segment," he said.

He said GAIL will monetise some of its pipelines by selling a minority stake through InvIT.

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

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

InvITs are like a mutual fund, which enables direct investment of small amounts of money from possible individual / institutional investors in infrastructure to earn a small portion of the income as a return.

GAIL will retain a majority stake in the pipelines that run from Dahej in Gujarat to Dabhol in Maharashtra and from there to Bengaluru in Karnataka.

The InvIT may involve selling a 10-20 per cent stake initially, he said.

Jain said once the ministry clears, the proposal will have to go to the Cabinet and if approvals come in time the InvIT could be launched within the current financial year.

Industry sources said the proposal to split GAIL was dropped as the company had a large project pipeline in its network.

A subsidiary may not have been able to raise the funds at rates that a combined balance sheet of GAIL can get, they said.

Creating pipeline infrastructure, which will take the environment-friendly fuel to unconnected places in the country, is key to the government's objective of making India a gas-based economy.

The government is targeting raising the share of natural gas in its energy basket to 15 per cent by 2030 from the current 6.2 per cent.

Sources said 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 will get 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, they said.

The government has a 54.89 per cent stake in GAIL India.