KOLKATA (miningweekly.com) – After much dithering and opposition from within the company, the Indian government is going ahead with plans to unbundle the operations of natural gas infrastructure and logistics major, GAIL India.

According to plans being drawn up by the Petroleum and Natural Gas Ministry, the natural gas pipeline business of GAIL, spread across a network of 11 551 km, will be hived off into a separate entity, and in the next stage, a majority stake in this entity will be divested to a private investor.

The truncated GAIL will then continue with the remaining verticals of natural gas marketing, involving domestic and overseas contracts, as well as the city natural gas marketing business, an official familiar with the development says.

The official says that there has been a sharp increase in interest from foreign investors in participating in the natural gas distribution network, citing the example of Brookfield, a Canadian asset management company buying out a 1 480-km gas pipeline network from Reliance Industries.

Unbundling of GAIL’s pipeline business into a separate entity and subsequent sale to a strategic investor, as planned by the Ministry, will in effect end the near-monopoly on natural gas distribution in the country, and is seen to be one of the biggest stumbling blocks of the Indian government’s plan to set up a national gas trading hub, along the lines of one planned by China.

In fact, opposition to the unbundling of GAIL's business verticals, from within the company, has delayed the setting up of an Indian gas trading hub by the government’s target date of December 2018.

The government last year concluded that a precondition of setting up of a national gas trading hub would be ensuring an ‘arms length’ distance be maintained between GAIL’s pipeline and marketing businesses to avoid unfair trade practices and a level playing field for all participants at the trading hub.

In the petroleum and natural gas sector regulator's opinion, “ownership of both transportation and marketing network by an entity leads to conflict of interest and is not in interest of consumers and suppliers and hence such operations needed to be unbundled”.

Officials said that in the case of GAIL’s pipeline business being hived off, and majority equity sold to a strategic investor, it would provide for non-discriminatory access to gas distribution to any liquefied natural gas terminal operator or bulk consumer.

As for GAIL’s remaining marketing business vertical, national oil refiners/marketers such as Indian Oil Corporation and Bharat Petroleum Corporation have envisioned acquiring a stake in the operations to expand their own marketing network and secure the business of overseas contractors for the fossil energy.