Cabinet to consider splitting GAIL, pipeline business not to be sold before 2022

To resolve the conflict arising out of the same entity owning the two jobs, splitting GAIL is being considered.

Union Cabinet, GAIL, GAIL (India), Natural gas, National gas pipeline grid, Liquefied natural gas, LNG, Reliance Industries

The Union Cabinet may by next month consider a proposal to hive off state-run gas utility GAIL (India) Ltd’s pipeline business into a separate entity but its sale to a strategic investor may not happen before 2022, sources privy to the development said.

GAIL is India’s biggest natural gas marketing and trading firm and owns more than two-thirds of the country’s 16,234-km pipeline network, giving it a stranglehold on the market. Users of natural gas have often complained about not getting access to GAIL’s 11,551-km pipeline network to transport their fuel.

Sources said to resolve the conflict arising out of the same entity owning the two jobs, bifurcating GAIL is being considered. A proposal is likely to be moved before the Union Cabinet for transferring the pipeline business into a 100% subsidiary, they said adding the proposal may be considered and approved by the Cabinet this month or latest by November.

After the Cabinet approval, a consultant will be appointed to transfer the pipeline business into a separate subsidiary. This would take 8-10 months to accomplish, they said. However, selling off the pipeline subsidiary to a strategic investor is not likely before 2022 as the thinking in the government is that the gas market will not be mature before that and state support would be needed for GAIL to accomplish building a national gas pipeline grid.

GAIL will continue to own the marketing business as also the stakes in liquefied natural gas (LNG) terminals. Previously, the government was considering transferring marketing business into a separate subsidiary for a sell-off at a later date but now a hive off of pipeline business is being considered.

GAIL has multiple long-term contracts to import gas in its liquid form (LNG) from countries such as the US and no strategic buyer would like to take the responsibility of those, particularly when the fuel is available at a cheaper price in the spot or current market.

It is now being considered that GAIL continues with the marketing business that would include all the sale contracts as also city gas retailing. Post-2022, the pipeline business can be sold to a strategic investor such as Canadian asset management company Brookfield that recently bought a 1,480-km pipeline owned by Mukesh Ambani’s Reliance Industries (RIL).

The strategic partner will operate the pipelines and give access on a non-discriminatory basis to any entity wanting to transport gas either from a natural gas field or an LNG import terminal to consumers. GAIL already keeps separate accounts for its gas pipeline and marketing businesses, making it easier to split them into two entities.

By unbundling GAIL and opening the sector, the government hopes to increase gas use to 15% of the energy mix by 2030 from current 6.2%.

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