British Gas-Gail Venture Finds Debt Route Expensive

The British Gas joint venture set up with the Gas Authority of India Ltd (Gail), which has obtained the FIPB clearance to mop up $30 million through a mix of loans and equity, is finding the debt route to be an expensive proposition.

The joint venture company has been particularly constrained due to the prevalent high interest rates coupled with complicated internal approval norms for public sector units.

This is, however, not an immediate problem as our equity is able to cover all costs incurred by the company Stephen Brandon, executive director of British Gas told Business Standard. But we foresee a difficulty in later stages as it would not be enough to finance through the equity route only, he added.

 

The provision of a sustained development for supply of gas for the companys operations would need raising of debt equivalent to that of equity needed for building up a distribution network for natural gas, the executive director said.Mahanagar Gas is a 50:50 joint venture between British Gas and Gail. This caters to a massive distribution for supply of gas to domestic, commercial and industrial consumers in Mumbai.

The joint venture has targeted about 3,000 domestic consumers by the end of the current fiscal and about 8,000 consumers by the end of next year.

The total amount allocated for distribution at presents stands at 1.5 million cubic metres per day.

The company is marketing compressed gas for use in taxis and buses.

According to Brandon, the potential in this sector is very high as it is environment friendly and today almost 2000 taxis in Mumbai use this compressed gas, he said.

British Gas is also exploring possibilities of importing liquefied natural gas to India with the government seeking fresh investments in this sector.

The government has invited proposals for importation of LNG in South India. However, British Gas finds it more appropriate to invest in western India as the existing infrastructure is adequate and there lies a huge potential since much of the pipelines are under-utilised, Brandon said.

The gas major has also pre-qualified for bidding for the 615 mw Gujarat-based Pipavav power project. British Gas is a major developer of power plants world-wide and is currently developing gas-fired power projects in Philippines, Italy, Indonesia and the UK.

The main advantage of such gas-fired projects built by the gas company is the easy usage of liquid fuel as well as naphtha according to the availability.