Gail to See Annua Shortfall of 2200 Crore

Thursday, March 20, 2008 | | |

State-run gas utility GAIL (India) Ltd could potentially see an annual shortfall of up to Rs2,200 crore in revenue and its operations at a key petrochemical complex could grind to a standstill with supplier Petronet LNG Ltd deciding to stop gas deliveries.
Instead, Petronet LNG has decided to divert the same 5 million tonnes per annum of liquefied natural gas (LNG) to another public sector undertaking, Oil and Natural Gas Corp. Ltd (ONGC). This will be utilized by ONGC at its proposed petrochemical complex at Dahej, Gujarat.
The competition amongthe two public sector firms, both of whom are equal stakeholders in Petronet LNG, also reflects the growing tussle for scarce resources of natural gas.
The stakes are high for both GAIL and ONGC as no supplier is willing to offer international long-term supply contracts and users have to tap into the spot markets where prices average $15-18, or Rs608-729, per million British thermal units (mBtu), compared with $4-5 per mBtu offered on existing long-term contracts.
GAIL, ONGC, Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd each hold a 12.5% stake in Petronet LNG.
“GAIL has derived themaximum benefit from this terminal. It is high time that ONGC gets some returns in lieu of its equity stake,” said a Petronet LNG executive who didn’t want to be named.
Petronet LNG is India’s largest LNG-receiving and regasification firm and its terminal has a capacity of 6.5 million tonnes per annum (mtpa). “Till date, we received all the LNG landing at (Petronet LNG’s) Dahej terminal. With this now going to ONGC, we will have no replacement as there is not much gas available in India,” admitted a GAIL executive who didn’t want to be named. “Though being an equity stakeholder of PLL (Petronet LNG), we did not have any rights on the gas. We have been demanding so for a long time from the government. So, as a middle path that was worked out, we have been given the LNG for mthane-propane extraction,” said an ONGC executive who did not wish to be identified.
GAIL’s Pata petrochemical complex in Uttar Pradesh, built with an investment of Rs3,350 crore, requires around 8mtpa of gas. Failure to tie up an alternative source would imply that GAIL runs the risk of letting its capacity remain idle.
GAIL supplies methane-propane from its Pata gas processing plant as feedstock to oil marketing companies for making petrochemical products such as polyvinyl chloride, acrylic acid and polymers.
India has only two LNG regasification terminals and both are in Gujarat. One is owned by Petronet LNG and the other by Shell India Pvt. Ltd (capacity of 2.5mtpa). Other terminals planned include one attached to the Dabhol project (5mtpa), and one each in Kochi (5mtpa) and Mangalore (5mtpa).
GAIL registered a net profit of Rs2,387 crore in 2006-07 fiscal year on revenues of Rs16,047 crore. For the nine-month period ended 31 December 2007, GAIL registered a 7.4% increase in turnover to Rs13,073 crore from Rs12,164 crore in the corresponding period in 2006.
Analysts believe Petronet LNG’s decision to stop supplies and consequent loss in revenues will be a setback to the company’s expansion plans. GAIL has lined up capital expenditure of Rs25,000 crore by 2012. While Rs10,000 crore is expected to be funded through internal resources, the balance will come from borrowings. The company has a current debt to equity ratio of 0.12:1.
GAIL is hoping to access gas from the Panna-Mukta-Tapti (PMT) fields from the offshore Mumbai coast, to partially meet its needs for rich natural gas. But GAIL is required by the Union government to market the entire 4mtpa of gas. PMT fields are owned by ONGC, Reliance Industries Ltd and BG India, a unit of UK-based BG Group, and the gas is simply handed over to GAIL for marketing across the country.
“GAIL used to get around 6 million cu. m per day of this gas earlier so it was given an additional 4 million cu. m per day of natural gas. This means GAIL would be able to replace about 1mtpa of its LNG requirements at its Pata plant with PMT gas, compared with the total 8mtpa it had received earlier. This would not suffice in the long run,” said a Mumbai-based oil and gas analyst with a leading brokerage who did not wish to be identified.
Shares of GAIL last traded on the Bombay Stock Exchange on Wednesday at Rs417.20. Indian stock markets were closed on Thursday