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GAIL changes strategy, to focus on non-core operations

LiveMint logoLiveMint 29-05-2014 Promit Mukherjee

Mumbai: GAIL (India) Ltd, the nation’s biggest gas distributor, will shift its focus to businesses such as gas retailing and petrochemicals because of uncertainties in gas supply and pricing, along with delays in approvals for pipelines.

GAIL will slow expansion of its core business of gas transportation and marketing, including its planned investments worth `20,000 crore to develop three pipeline networks across the country.

Instead, the company will develop its gas retailing and petrochemicals businesses, B.C. Tripathi, chairman and managing director of GAIL, told analysts in Mumbai on Wednesday.

“There is huge potential in gas retailing and city gas distribution. We have identified 35 cities with a population of over 5 lakh (500,000) around the catchment area of our pipeline network where we can expand rapidly and supply gas,” said Tripathi, adding that their focus will be on improving last-mile connectivity in the near term.

Under its new plan, GAIL will be setting up so-called CNG (compressed natural gas) highways and CNG stations in cities and towns, where it already has a presence through its pipeline network. Also, the company, through its subsidiaries—GAIL Gas Ltd, Mahanagar Gas Ltd and Indraprastha Gas Ltd—will bid for forthcoming city gas distribution projects.

CNG is used as fuel to run automobiles and factories. The proposed CNG highways will connect cities that already have GAIL’s pipeline network passing through them.

GAIL currently has a natural gas pipeline network of 10,900km running across seven states in the western and northern parts of the country, according to the vision document 2030 of Petroleum and Natural Gas Regulatory Board.

GAIL, according to Tripathi, will be targeting customers in these states. The company has already identified 260 major industrial and commercial customers who can be connected immediately through its existing network, he said.

The company did not give details on investments needed for the project in response to a query from Mint.

Analysts, however, say the project may not require major capital expenditure, and will help the company improve pipeline utilization.

“The pipeline utilization of GAIL is below 50% at the moment and strategies of gas retailing and CNG highways could help the company in increasing the utilization in limited time as the domestic gas supply situation will take time to improve,” said Gagan Dixit, an analyst with Quant Capital Pvt. Ltd, adding that the high price of gas could be a hurdle in adding retail customers.

GAIL currently has a capacity to supply 200 million standard cubic metres of gas per day (mscmd) through its pipeline network, although it supplied only 96 mscmd in the year ended 31 March. Gas volume dropped by 8.5% in fiscal year 2014 from the previous year.

The company will also go ahead with its planned investment of `4,500 crore for two petrochemical plants in Gujarat.

“The total petrochemicals capacity of GAIL available for marketing is expected to go up from the current 417,000 tonnes per annum (tpa) to 1.7 million metric tpa by 2016-17 after these plants come into production,” said a spokesperson for the company in response to an email.

Dhaval Joshi, an analyst with brokerage Emkay Global Financial Services Ltd, said GAIL currently gets up to 5% from gas retailing and 22% from petrochemicals in terms of operating profit.

“A concerted focus on these projects will help improving their contributions on the profitability to some extent, it will give the company time to plan its main business with the uptrend in demand and rise in gas prices,” said Joshi.

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