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"There is significant growth potential in the core business of Natural Gas distribution." - Views on News from Equitymaster
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  • Apr 7, 2001

    "There is significant growth potential in the core business of Natural Gas distribution."

    Mr. Robert Thomas is the Managing Director of Gujarat Gas Company Ltd. Mr. Thomas started his career with British Gas and has been associated with the company since. He has been involved in the gas transmission and distribution business for the past 20 years. During this period he has been exposed to the various functions including engineering, marketing & finance and management services.

    In an interview with Equitymaster.com, Mr. Thomas spoke on the prospects of the energy sector and natural gas in particular. He has stressed on the shareholder wealth that the company has and is focused on creating.

    EQM: Briefly, with respect to the energy sources sector, please comment on the existing industry scenario? How do you see the industry evolving in the next three years?

    Mr. Thomas: India is striving to achieve higher GDP growth rates and hence, the growth in energy demand would be driven not only by converting the customers who do not have access to (or have access to inefficient) energy sources, but also from the growth in demand linked to the growth in GDP. Thus, generally, in a developing country, energy demand is likely to grow at good rates.

    The primary sources of energy are coal, oil and gas. Natural Gas has a number of advantages over other sources e.g. Lower carbon emissions resulting in less pollution and lower deposition of carbon on equipment (resulting in lower downtime and maintenance costs), no storage and handling requirements etc. Additionally, since a pipeline delivers Natural Gas and there is a meter for every customer, there is no adulteration and the customer pays only for the fuel that enters his premises. All this has resulted into a worldwide preference to switch to Natural Gas.

    In India, a similar trend is visible. According to the Ministry of Petroleum, the production of Natural Gas in India was in excess of 27 million standard cubic meters during 1999-2000. The Hydro-carbon Vision 2025 states that the demand for Natural Gas will be in excess of 300 million cubic meters by the year 2011-12. This implies that the demand will grow by around ten times in the current decade and gas would have to be imported to meet this huge demand.

    Thus, Natural Gas is the fuel of the future.

    EQM: What is the capacity of the pipelines operated by Gujarat Gas and what is the utilisation rate? Is the company currently planning on setting up more pipelines in the country?

    Mr. Thomas: Gujarat Gas has a pipeline network of more than 1,500 Kms. This network has been made up of pipelines of different diameter based on the present demand and future potential expansion in each area. Hence, capacity of each pipeline as well as the utilisation rate would be different.

    Gujarat Gas is looking for opportunities to expand its pipeline network. However, plans to set up more gas pipelines would be subject to the availability of gas as well as Government approvals apart from our internal approvals process.

    EQM: The company faces a shortage in the supply of gas; what steps is it taking to overcome the supply risk and what is the time frame for achieving this objective?

    Mr. Thomas: Yes, one of the biggest constraints is availability of gas. Cairns Energy has already announced that it has found substantial volumes of gas in the Cambay field. BG is in negotiation to buy this gas and this is likely to mitigate the concern to a significant extent.

    EQM: With the Government permitting private investment in E&P does Gujarat Gas have any intentions of bidding in the current round of NELP-II?

    Mr. Thomas: Gujarat Gas does not have any intention of entering into E&P. There is significant growth potential in the core business of Natural Gas distribution and hence, there is no need to look for other businesses like E&P which are not the core strength of Gujarat Gas.

    EQM: Does the company have any plans of expanding its pipeline network to Northern Gujarat? What kind of investments would this require?

    Mr. Thomas: As already mentioned above, Gujarat Gas is keen to expand the network. However, the same is subject to Government approval and availability of gas. Hence, at this point of time, it would be premature to talk of network expansion to Northern Gujarat or investments required for the same.

    EQM: What initiatives is Gujarat Gas taking to enhance shareholder value?

    Mr. Thomas: Gujarat Gas has been consistently enhancing shareholder value. Dividend payouts have been increased from 40% in 1997 (just before BG acquired GGCL) to 60% in March 1999, 80% on annualised basis in December 1999 and 100% for the year ended December 2000. Thus, dividend payout has been increased by 20% every year for the last three consecutive years. This was done despite making sufficient provision for contingent liabilities in line with best international accounting practices. Gas volume sales, which were at 0.52 mscmd (million standard cubic meters per day) in March 1997 have been doubled to more than 1.0 mscmd in December 2000. The Gross Block, which was at around Rs. 1.11 bn has also been almost doubled to touch Rs. 2.13 bn during the same period. All this was achieved without diluting the equity.

    It is proposed to continue to add shareholder value by further increasing gas throughput. The Hazira - Ankleshwar pipeline, which has a potential to deliver up to 4.0 m cubic meters per day (without compression) currently, transports only 0.4 mscmd. With new gas discoveries in the region as well as the potential import of LNG by a number of players, GGCL is poised to take the first mover advantage.



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    May 26, 2015 (Close)


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