KOLKATA (miningweekly.com) – In an apparent reversal of its earlier plans, the Indian government is toying with a proposal to create more independent verticals within gas infrastructure major, GAIL India, instead of splitting the company.
According to indications available, the government is to accede to demands of GAIL and backtrack on splitting the firm to create two operational companies, with one handling pipeline construction and transportation services and the other handling gas marketing operations.
“My job is not to create companies. My job is to create more accessibility through policy initiatives,” Petroleum and Natural Gas Minister Dharmendra Pradhan said in a statement.
Indicating that hiving off the two major operations into separate companies might be taken off the table, he said that GAIL must ensure transparency and that the company was working on details to make its two business verticals more independent.
Although no details of the apparent rollback of earlier plans are available, national oil refiners and marketers Indian Oil Corporation and Bharat Petroleum Corporation Limited have already indicated interest in taking up GAIL’s gas marketing operations as it would add value to their existing oil marketing and retailing networks.
Industry sources said that one of the possible reasons of government backtracking on its plans to split GAIL was reservations of the latter communicated to the government.
According to GAIL, while it was the global practice of unbundling monopoly gas infrastructure and marketing companies, it was a viable option only in mature energy markets wherein natural gas constituted 15% of the country’s total energy mix, while in India it was as low as 6%.
The sources said that the Petroleum and Natural Gas Ministry might have also taken cognizance of the argument against splitting of GAIL on the basis that while the latter had constructed and operates the entire 11 400 km gas pipeline in the country, private investors, although permitted to undertake such investment, had not undertaken any pipeline projects over the last several years and GAIL continued to be the monopolistic player by default.
Although a new structure of GAIL for its existing business verticals to ensure operational independence were not yet clear, industry sources said that the Coal India Limited model could be adopted wherein the latter operated as a holding company for its independent wholly owned operational subsidiaries with each of the subsidiaries having their own management structures.
However, the restructuring of GAIL even under a new process would need to be completed before the end of 2018, the unofficial deadline set by the Ministry for setting up a Indian gas trading hub.
A prerequisite for such a trading hub would be to offer third parties open access to gas transportation through the existing pipeline network to participate in the proposed gas trading hub, which a restructured GAIL would need to ensure, the sources said.