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Gail: Planning for the future…

Mar 21, 2001

Gas Authority of India (Gail) is the dominant player in the Indian gas transportation industry. The company ventured into petrochemicals in FY00 with a 300,000 tonne per annum (TPA) gas cracker plant at Pata, U.P. As the economy shifts towards the usage of cleaner fuels, gas will be one of the key beneficiaries. With gas supply in shortage there is pent up demand for the fuel. To facilitate the availability and reduce import constraints the Government has removed countervailing duty (CVD) of 16% on liquefied natural gas (LNG) in the current budget. With construction of a number of gas terminals being planned in India, Gail is ramping up its pipeline capacity.

The company has envisaged a capital expenditure of Rs 105 bn over the next four years. The Hazira - Bijapur - Jagdishpur pipeline, Gail's claim to fame, currently has a capacity of 33.4 m metric standard cubic meters per day (mmscmd), which is to be augmented to 60 mmscmd. The doubling in capacity is estimated to be completed by 2003. It will further extend this pipeline to Haryana and Punjab.

The Krishna - Godavari gas distribution network is expected to be completed in three phases by 2002. Phase -I of the project, a 135 kilometer (Km) pipeline, has already been completed. Phase II and III consists of an additional 413 Kms of gas pipeline.

The company will also set up the first LPG distribution pipeline from Kandla, Gujarat to Loni near Delhi. The pipeline will be 1,264 Km long involving a capital expenditure of Rs 12.3 billion. Additional LPG transportation pipelines are being planned in South India from Visakhapatnam to Secunderabad and a Bangalore - Mangalore - Coimbatore link. To meet the increased demand of LPG the company is augmenting capacity at its Gandhar, Gujarat unit by 25 mmscmd (12% of capacity).

The company also seems to have decided to be present along the entire gas value chain. This will facilitate in reducing the cyclicality in earnings and also bring down the supply risk. Consequently, the company has ventured into gas exploration and production (E&P). Gail will participate in the international bidding for coal bed methane (CBM) blocks in West Bengal and the second round of bidding under the new exploration and licensing policy (NELP) - II. The bidding for NELP - II will be in partnership with either a domestic or foreign company. Under NELP - 1, the company has been awarded two offshore blocks, which are being explored in tie-up with Gazprom, Russia and Oil & Natural Gas Corp. (ONGC).

Gail is also one of the main promoters of Petronet, which has been given the mandate to set up gas terminals in India. Petronet will set up a 5 MMTPA terminal at Dahej and a 2.5 MMTPA terminal at Kochi. These terminals are estimated to come onstream by 2005. Gail also was recently admitted as the third partner in the Trombay gas terminal project, which is being set up by Tata Power - TotalFina Elf.

The gas transportation industry is supply driven as availability and not demand is the key concern. With several projects being planned to overcome this shortcoming Gail is ramping up its pipeline capacity. At Rs 47.8 the company trades on a multiple of 3.9x 9 m FY01 annualised earnings.

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