Unbundling at GAIL will be detrimental for the PSU and the gas sector. Here’s why

Former Chairman and Managing Director (CMD) BC Tripathi has warned that unbundling at GAIL will be detrimental to the sector
Unbundling at GAIL will be detrimental for the PSU and the gas sector. Here’s why

New Delhi: As the BJP government at the Centre mulls unbundling the pipeline business at GAIL and selling it off to a strategic investor, the PSU's former Chairman and Managing Director (CMD) BC Tripathi has warned that such a move will be detrimental to the sector. Speaking on the sidelines of a gas infrastructure conference organised by FICCI on Thursday, Tripathi said, "I am not against the idea of unbundling. But at this juncture, unbundling of the pipeline and marketing business at GAIL will be detrimental to the sector."

So, how should the government pursue unbundling at GAIL?

According to the former GAIL CMD, "The gas economy right now is yet to witness growth in demand. Therefore, the return on investment is low. It also takes longer for the pipelines to mature. And when they do, anyone would be interested in investing in them." Saying that the way for the government to involve the private sector in the business should be to let them invest in virgin pipelines, instead of matured ones. "If the government is interested in bringing in the private sector, why not bring them in to invest in virgin pipelines. The government could support with funds to bridge the viability gap till the time the pipelines mature and then go ahead and unbundle them when they mature." Tripathi, 59, was the youngest person to become a chairman of an oil and gas PSU in August 2009. He served as the CMD of GAIL for two consecutive terms before stepping down from the post on July 31 this year. He was eligible for a third extension till his date of superannuation in January next year. However, he was denied an extension by the government.

Why is the govt planning unbundling at GAIL?

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. Reports have claimed that natural gas users have often complained about not getting access to GAIL's 11,551-km pipeline network to transport their own fuel. And the move to unbundle the two businesses is being considered by the BJP government to resolve the conflict.

Does GAIL deny access to its pipelines to private players?

A source associated with the pipeline business at GAIL, who spoke to PSU Watch on the condition of anonymity, said that the GAIL's pipeline is open to be accessed by anyone. "GAIL has never denied access to its pipelines to any player in the market. The unbundling of the two businesses has already been done internally. But I believe hiving off the pipeline business is not just going to be detrimental to the sector but also for GAIL." Explaining the impact of unbundling, the source said, "Take the eastern pipeline under Pradhan Mantri Urja Yojana, for example. The Jagdishpur-Haldia and Bokaro-Dhamra Pipeline in the east, for example, does not make business sense for us because the demand in this part of the country is yet to pick up. It will take time for these pipelines to mature and give us return on investment. However, since we are a PSU, we have taken this up because social welfare is involved. And that's important. The government has pitched in with viability gap funding, however, it will still take us time to get return on investment."

'One business sets off the loss incurred at the other'

The source added that the business coming in from matured pipelines is used to set off the loss incurred in pipelines which are yet to mature. "Because we cannot only pursue business from the perspective of making profit, we have ventured into areas which are not profitable to us. If you unbundle the marketing and the pipeline business, it will affect the company's finances ultimately," the person said.

PSU Watch