Indian Oil Corporation's gas pipelines to be part of proposed GAIL arm

Cabinet to take a call soon; IOC product pipeline not to be part of new arm

The government is likely to carve out a separate gas transportation company that will hold the existing natural gas pipelines of both GAIL India and Indian Oil Corporation (IOC). The newly formed company will be a fully-owned subsidiary of GAIL.

The Ministry of Petroleum and Natural Gas has already floated a Cabinet note for inter-ministerial consultation on the creation of a new gas transmission operator. “According to the plan, GAIL will have to pay the book value for the existing natural gas pipelines of IOC. This will be integrated with the newly formed subsidiary,” said an official, who is close to the development.

The official clarified that IOC’s petroleum product pipelines will not be part of the proposed GAIL arm. The Union Cabinet is likely to take a call on this proposal soon.

According to industry experts, the construction cost of natural gas pipeline would be around Rs 3-3.5 crore a kilometre. This would mean that GAIL will have to pay around Rs 500-600 crore to buy IOC’s natural gas pipelines.

At present, the country has 16,981 km of natural gas pipeline with a capacity of 387 million metric standard cubic meters per day. Of this, GAIL owns 12,160 km, while IOC has around 162 km.

In February, GAIL Chairman and Managing Director Manoj Jain said the government was working on a proposal to set up a 100 per cent subsidiary of GAIL to comply with regulations that require transportation and marketing of gas to be a separate business. The new entity will be formed within a year “once the Cabinet nod is in place”. The proposed arm is expected to have around 15 per cent share of GAIL’s revenue.

IOC owns and operates 140-km long Dadri-Panipat Natural Gas Pipeline (DPPL). This pipeline, commissioned in 2010, is also interconnected with GAIL’s Hazira-Vijaipur-Jagdishpur Pipeline (HVJPL) and Dahej-Vijaipur Pipeline (DVPL) network at Dadri.

The remaining 22 km pipeline network of IOC connects Ennore and Manali, where IOC subsidiary Chennai Petroleum Corporation has a refinery.

When asked about the plans, a GAIL official said, “There is an immediate requirement of creation of natural gas grid. In addition, the supply side should be in place with rising demand. Hence, a dedicated 100 per cent arm will improve efficiency in transmission sector and will make the business more transparent.”

Apart from IOC and GAIL, the other companies that have natural gas pipelines include Gujarat State Petronet (GSPL), Reliance, and Assam Regional Network (ARN).

GAIL’s pipeline division is set to expand its foothold in the Northeast through the Jagdishpur-Haldia & Bokaro-Dhamra Natural Gas Pipeline (JHBDPL) project, also known as the ‘Pradhan Mantri Urja Ganga’ project.

The first phase of the project, covering 753 km from Phulpur to Dobhi, connecting Gorakhpur, Patna and Barauni, has already been commissioned along with the six Geographical Areas (GAs) on this length. The second phase — of 901 km connecting Dobhi to Durgapur and Dhamra to Angul — and the third phase — of over 1,000 km that will run across Bokaro-Angul and Durgapur-Kolkata — are expected to be completed by the end of the year.