Govt. Mulls Splitting GAIL Within A Year

The government is planning to split state-run gas utility GAIL by March next year to create two companies: one marketing gas, and another operating pipelines that can be used by consumers who buy direct from producers. “All this un-bundling should be done within this fiscal year (to March 31, 2019),” Mr. D.K. Sarraf, Chairman of Petroleum and Natural Gas Regulatory Board (PNGRB), told news agency Reuters.

GAIL (India) Ltd., the country’s biggest gas marketing and trading firm, owns most of the nation’s pipelines, giving it a stranglehold on the market for the fuel. By splitting GAIL, the petroleum regulator hopes to increase the number of gas consumers and attract billions of dollars needed to expand the pipeline network and build more LNG terminals.

GAIL already keeps separate accounts for its gas pipeline and marketing businesses, making it easier to split them into two entities before a change of ownership, he said. Mr. Sarraf did not say which business GAIL would retain. Oil Minister Mr. Dharmendra Pradhan had said in January that the company should focus on laying pipelines, suggesting it is the marketing side that would be hived off.

GAIL had in the past resisted the split arguing that it had kept its marketing arm at an arm’s length from the transmission business. However, this time it seems be on a losing ground.

By unbundling GAIL and opening the sector, the government hopes to increase gas use and meet its objective of raising the share of a cleaner, cheaper fuel as a part of the energy mix to 15%, from 6.2%, in the next 12 years. Many power plants and small industries like ceramic, glass and cement makers rely heavily on more expensive or dirtier fuels such as naphtha, diesel and coal. In future, though, even small companies will be able to buy gas via pipelines, without having to go through GAIL.

Only a handful of companies – including Petronet LNG Ltd. (PLL), Indian Oil Corporation (IOC) and Gujarat State Petroleum Corp. (GSPC) – currently import and sell gas in India. The gas regulator hopes by July, however, to draft norms for allowing end-users to bid for using LNG terminals to import gas. “We are planning to put LNG terminals on public access to the extent of 20%,” Mr. Sarraf said. The regulator is also looking at how to open access to the pipeline network for smaller buyers.

Boosting infrastructure

India’s gas demand is constrained by low domestic output, a small number of LNG terminals – just four – and a pipeline network that does not reach enough customers. GAIL owns more than two-thirds of the country’s existing 15,000-km of pipelines, but the government wants to more than double the network to expand gas deliveries. While the new pipeline company created by the division of GAIL would be expected to lead the way, the government also wants other companies to bid for rights to build and operate pipelines. Three LNG import facilities are also under construction, and there are proposals for many more. Domestic gas production is also expected to rise.

Mr. Sarraf estimated an investment of nearly $20-bn would be needed over the next several years for laying pipelines.

IOC eyes marketing arm

In a related development, IOC has expressed its interest in acquiring the marketing arm of GAIL, according to a report in the Telegraph newspaper. The refiner has reportedly informed the Oil Ministry that it would benefit by the vast marketing network of GAIL and help it to become a fullyintegrated energy player.