State-owned GAIL plans to launch pipeline InvIT before company split

State-owned gas utility GAIL (India) Ltd plans to launch an InvIT of its two gas pipelines between Dahej and Bengaluru ahead of a proposed splitting of the pipeline business from the gas marketing function, sources said.

The nation's top gas marketing and transportation firm plans to monetise Dahej-Uran-Panvel-Dabhol pipeline and Dabhol-Bengaluru pipeline by setting up an Infrastructure Investment Trust (InvIT), two sources with direct knowledge of the matter said.

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 return.

GAIL will retain 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 10-20 per cent stake initially, the sources said.

GAIL owns and operates a natural gas pipeline network that spans 12,502 kilometers, mostly in the western, southern and northern part of the country. It is building more pipelines in eastern part of the country.

The sources said InvITs are new infrastructure financing model and GAIL is keen to use them.

The two pipelines proposed for InvIT had incurred over Rs 3,000 crore spending.

The move comes ahead of a planned spin-off of GAIL's pipeline business into a 100 per cent subsidiary.

GAIL is India's biggest natural gas marketing and trading firm and owns more than 70 per cent of the country's 16,981-km pipeline network, giving it a stranglehold on the market.

Users of natural gas have often complained about not "fairly" getting access to GAIL's 12,160-km pipeline network to transport their fuel.

Sources said to resolve the conflict arising out of the same entity owning two jobs, bifurcating GAIL is being considered.

GAIL's core business after the bifurcation would be marketing of natural gas and petrochemical production. It will have to hire capacity on pipelines from the subsidiary and pay the regulator approved traffics for the same.

Sources said a note for the split will be moved for the consideration of the Cabinet soon.

The proposal involves separating the accounts of the pipeline division as well as transferring employees directly connected with the pipeline operations to the new subsidiary, they said adding a suitable name for the subsidiary is being mulled over.

GAIL already keeps separate accounts for its gas pipeline and marketing businesses, making it easier to split them into two entities.

By unbundling GAIL and opening the sector, the government hopes to increase gas use to 15 per cent of the energy mix by 2030, from current 6.2 per cent.

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