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Thursday, July 29, 2021

Explained: Why GAIL is dropping plans to hive of its pipeline business

GAIL will not hive off its pipeline business according to company and government officials. The Indian Express examines why the plan was proposed, the opposition it faced, and why it was eventually scrapped.

Written by Karunjit Singh , Edited by Explained Desk | New Delhi |
Updated: June 12, 2021 1:19:15 pm
GAIL is India’s largest gas distributor. (File photo)

State-owned natural gas marketer and pipeline operator GAIL will not hive off its pipeline business according to company and government officials. Petroleum Minister Dharmendra Pradhan had previously said the government was pursuing a separation of the two businesses to address issues of any conflict of interest posed by the gas pipeline major. The Indian Express examines why the plan was proposed, the opposition it faced, and why it was eventually scrapped.

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Why was the government planning to bifurcate GAIL?

GAIL owns and operates a 13,200-km network of natural gas pipelines which accounts for over 70 per cent of the total natural gas pipeline network in India besides also being a gas marketer. The government had till late last year maintained that it was working on a plan to hive off the company’s pipeline business to address concerns of a conflict of interest of one of the largest pipeline operators also being a gas marketer.

What was the reaction by GAIL?

The plan faced stiff opposition from officers within GAIL who noted that the two businesses added stability to the company’s financials with the transmission business acting as a stable source of income when the gas marketing business was hit by fluctuations in international gas prices. GAIL officers also added that this financial stability would be a key factor in enabling GAIL to expand its pipeline network. Expansion of natural pipeline networks is a key step in the government’s plans to boost the share of natural gas in our primary energy mix to 15 per cent in 2030 up from about 6.2 per cent currently.

Company officials also noted that there was still under-utilisation in GAIL’s pipeline network and therefore there was no issue of a lack of access to GAIL’s pipeline network or preferential treatment to GAIL’s natural marketing arm over other companies. Officials also noted that they had learned through an RTI request that the Petroleum and Natural Gas Regulatory Board had not received any complaints regarding preferential treatment by GAIL for its marketing business.

Why did the government scrap the plan?

According to government officials aware of developments, the announcement of an independent pipeline system operator in the union budget had removed the need for a bifurcation of GAIL’s businesses. “An independent Transmission System Operator (TSO) will resolve the issue of non-discriminatory access to GAIL’s pipeline network as the TSO will be responsible for the booking and allocation of pipeline capacity,” said a government official.

Officials said the government’s key focus now was on ensuring that GAIL is able to meet targets on expansion of its pipeline network and that GAIL would monetise it’s pipeline network to fund further expansion of its pipeline network.

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