Funds-Starved Mahanagar Gas To Raise Rs 20cr To Tide Over

Mahanagar Gas Limited, a 50:50 joint venture between the Gas Authority of India Limited (GAIL) and British Gas, has decided to raise Rs 20 crore in short-term loans from financial institutions.

The company is facing an acute cash crunch because of heavy investment in a Rs 450-crore Mumbai gas distribution system project. The project is expected to supply natural gas to over a million domestic consumers in 10 years.

This is the first time that Mahanagar Gas, which started operations in 1995, will be raising loans from the market.

Officials assert that Mahanagar Gas accumulated losses of over Rs 5 crore would be wiped out once the company starts recovering dues from its consumers.

 

The company had decided that the capital expenditure incurred by it at the residences of the consumers for the supply of gas would be borne by the latter. Since this has not been implemented strictly so far, the expenditure is outstanding in the balance-sheet as losses. Once the recoveries are made, officials point out, these losses would be wiped out.

The authorities have expressed concern over the slow progress of the project. Of the targeted one million connections in 10 years, only 5,000 domestic connections have been provided so far. The original schedule had envisaged about 15,000 connections being in place at this point of time.

However, its record in providing compressed natural gas (CNG) for vehicles has been quite good. Over 3,500 vehicles in Mumbai, mainly taxis, have been converted to run on CNG.

The Rs 450-crore project will have 1:1 debt-equity ratio. Apart from the initial equity contributions of GAIL and British Gas, additional funds, if required, will be raised through long-term loans or by offering 30 per cent equity to the public. In such a scenario, the stake of the two promoters will decline to 35 per cent.

The joint venture has been mired in controversy since inception. In 1993, the government had issued a letter of displeasure to GAIL saying its tie-up with British Gas was not transparent. GAIL had countered that it was forced by the government to accept British Gas as the joint venture partner during the then British Prime Minister John Majors visit. Gaz de France, the other company in the running, was summarily rejected.