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M Ravindran, Chief Executive Officer (CEO), GAIL Gas Limited

16 Jun 2011

GAIL Gas Limited is a fully owned subsidiary of GAIL India Limited, focused on distribution and marketing of CNG and PNG. GAIL Gas Limited was set up with the vision of taking advantage of encouraging business opportunities offered by rapid growth of city gas distribution (CGD) business.

Ravindran in an interaction with InfralineEnergy's Sangeeta Tanwar shares his company's aggressive plans to bid for more CGD projects and the company's efforts to promote skilled manpower for the industry. He calls for proactive role of state and local authorities in promoting CGD projects as CGD represents local aspirations. He shares the outlook on future gas availability for CGD companies with continuous decline in gas output from Reliance's KG-D6 fields.

Edited Excerpts.

What are the challenges faced by City Gas Distribution (CGD) business?

The transmission and distribution segment of the natural gas sector remains relatively under developed, but this is likely to change in the immediate future.

The various developments are opening material opportunities for CGD business but at the same time these developments present certain challenges as well. In order to tap the available opportunities, the critical analysis of the business is required.

"CGD projects represent local aspirations and therefore the involvement of the state and local government is the key to its success."

The availability of gas, input gas price and its terms and conditions are critical factors for viability of the CGD projects. CGD is cost intensive with high gestation period for the projects. It is utmost important to evaluate and synchronise the infrastructure development with the growth of demand. There is also a need to create a robust customer care infrastructure to meet the customers' expectations in terms of supplying fuel at cheaper-comparative prices, its availability, safety and other expectations by the Government and the Regulator.

The Policy makers are looking at implementation of CGD projects in about 150-200 cities-Geographical Areas (GAs) in the current decade. Implementation of projects in such a large number of cities requires a large pool of skilled and semi-skilled manpower in immediate future. Development of skilled manpower having core competence to safely implement and operate CGD projects is the biggest challenge for the country. GAIL, through GAIL Training Institute and its training modules is making required attempts to develop the desired competence in order to meet the challenge of possessing adequate skilled manpower.

What are the enablers required for the growth of CGD business?

The business has vast scope of growth in the coming years with an expected increase in gas supply and environmental concern becoming a priority with people at large.

The factors responsible for the growth of the sector would include an increase in the availability of gas which is foreseen with the increase in domestic gas production and development of infrastructure at a cross country level. The availability of Natural Gas coupled with cost benefit by controlling the hike in the prices would further ensure success for the business.

CGD projects represent local aspirations and therefore the involvement of the state and local government is the key to its success. The Statutory and Government support is also required for CGD entities to grow.

With continuous increase in gas prices - is Compressed Natural Gas (CNG) losing its cost advantage over other liquid fuels including petrol and diesel?

The continuous increase in gas pricing is definitely having an effect on the CNG cost advantage. Cost and environment benefit is considered as major attraction by consumers while considering CNG as a fuel. With the increase of input price of gas, the cost of CNG also increases, which reduces the economical benefit available to the customer against the conventional fuel.

However, it is getting mitigated with the increase of the prices of conventional fuels. CNG continues to enjoy cost benefit with respect to other fuel such as petrol as it is approximately 60 percent cheaper than petrol.

What led to the establishment of a subsidiary by GAIL (India) Limited in the form of GAIL Gas despite GAIL (India) enjoying a number of joint ventures in CGD business?

GAIL (India) introduced natural gas with an aim to reduce pollution caused by conventional fuels by introducing CNG as a clean burning fuel to curb the vehicular emission. It launched projects in the cities including Delhi, Mumbai and Vadodara in `90s. Based on the success of pilot project and experience of full scale projects in Delhi and Mumbai, GAIL came up with a multi-pronged strategy to promote CNG and PNG through incorporation of Joint Venture Companies (JVCs) for specific State-GAs in line with MoP&NG guidelines.

Based on the success of Indraprastha Gas Limited, Mahanagar Gas Limited and other JVCs, CGD business encouraged entry of other entities in the business as well. Today, CGD business has become highly competitive.

In view of the emerging changes in the Hydrocarbon Sector and with the formation of PNGRB, it was essential for GAIL's growth that the business strategy had to be amended suitably and an action plan had to be firmed up quickly. Accordingly, a detailed City Gas Strategy Roadmap was prepared for implementation of City Gas Projects in more than 200 cities which were identified contiguous to existing and proposed pipeline in a phased manner.

"GAIL Gas has commissioned online station at Gorwa and daughter-booster station at Gotri. GAIL Gas is now in the process of setting-up additional four more stations in the city."

To work and prosper and maintain one's leadership in such a highly competitive environment, a sincere and dedicated approach, energy and pace are required. This necessitated the formation of a new establishment of GAIL which would be fully dedicated to CGD projects. Therefore, GAIL Gas was incorporated with an objective of focused implementation of CGD projects in the country.

GAIL Gas focuses on CGD business catering to small gas users in the sector like glass, ceramics and auto component manufacturers. The company is engaged in distribution and marketing activities of CNG as fuel for vehicles, intercity as well as intra city, PNG for domestic households, industrial and commercial units. The company is responsible for setting up the infrastructure for distribution of gas in the authorised cities.

What is the kind of support that GAIL Gas gets from its parent company GAIL (India) Limited?

GAIL (India) started as a natural gas pipeline company in 1984. It has over the years successfully evolved into a major integrated gas company with presence across the natural gas value chain with global footprints. GAIL's strength lies primarily in its project management skills evident in the form of large number of pipeline and petrochemical projects completed efficiently by it.

GAIL Gas gets to learn and benefit from rich experience of the GAIL's executives in the Gas network. The highly experienced and trained professionals from GAIL provide cutting edge knowledge and expertise to GAIL Gas.

GAIL Gas is taking-up CNG projects in certain areas of Vadodara. Which are these areas and when are the projects scheduled to be completed?

GAIL has been authorised by MoP&NG and allocated 0.1 MMSCMD gas for CNG supply in Vadodara. GAIL (India) Limited operates three CNG stations in the city - a daughter booster station at Nizampura (since 1993) and mother stations at Dasrath (from 2005) and Race Course (since 2007). These mother stations have been upgraded and modernised. GAIL Gas has commissioned online station at Gorwa and daughter-booster station at Gotri. GAIL Gas is now in the process of setting additional four more stations in the city.

Further, GAIL Gas and Vadodra Mahanagar Seva Sadan signed the JVA in 2009 to set up a joint venture company for distribution of PNG for use in residential, commercial and industrial sectors as well as for supply of CNG for the automobile sector. The Joint Venture Company is geared to synergise the existing infrastructure of both the organisations and further augmenting the supplies of PNG and CNG to every nook and corner of the Vadodara city.

What is the status of other CGD projects taken-up by GAIL Gas?

We have been authorised by PNGRB to implement CGD projects in Dewas (Madhya Pradesh), Kota (Rajasthan), Sonipat (Haryana) and Meerut (Uttar Pradesh). The company is committed to connect various cities with clean energy and we are rapidly building infrastructure in these authorised cities. The laying of steel pipeline and PE network is in progress in all the four cities.

"In case RIL is unable to keep up with its earlier forecasts of gas production, the power and fertiliser projects will get an immediate hit. Gas transmission companies will also suffer a hit with lower gas transmission volumes."

The Company has signed over 80 Gas Sales Agreements at its four locations out of which 25 industrial customers are connected with gas supply. GAIL Gas has started its CNG Stations at Dewas and Sonipat. CNG Station at Gotri, Vadodara, Panvel, Maharashtra and Vijaypur has also been commissioned. Nearly 11,200 households have registered with us for domestic PNG connection and out of these 183 domestic customers have already been provided with PNG connection.

What business opportunities does the expansion of pipeline network in the Southern region offer for CGD?

Major trunk pipelines have been authorised in the Southern region and development of these pipelines is opening the doors to these newer markets. The Petroleum and Natural Gas Regulatory Board (PNGRB) has also provided due recognition for rapid development of infrastructure and has accordingly notified the Distt of Ernakulam in state of Kerala for the fourth round of the bidding process.

What is the company's future projection in CGD business?

Both the government and the regulator have expressed their intention of rolling out CGD projects in about 200 cities within the next four to five years.

GAIL Gas received authorisation for implementing CGD projects in Kota, Dewas, Sonepat in the first round of bidding process taken up by PNGRB. The Company is currently implementing the projects in these cities. It is also focusing on the augmentation of CNG stations in Vadodara, which was authorised by MoP&NG prior to the incorporation of PNGRB.

GAIL Gas plans to actively bid for many cities and get authorisation for the cities in order to establish clean fuel network across the nation. Currently, GAIL Gas is participating in the bidding rounds carried out by PNGRB for CGD projects. It has submitted bids for Jalandhar, Ludhiana, Kutch (East) and Asansol- Durgapur in the third round of bidding process and the forthcoming rounds of bidding.

"Participation in more cities by bidding process of PNGRB is the key to company's development with pan India presence."

GAIL Gas is working towards developing model distribution networks, integrating the latest available technologies to improve operational efficiencies comparable to the best in the world to achieve the highest level of customer satisfaction.

Reliance Industries has expressed its inability to ramp up gas production from its KG-D6 block beyond 50 MMSCMD until FY14. This will affect you and other players in gas transmission business owing to lower gas transmission volumes. Comment.

It has been reported in media that Reliance Industries Limited (RIL) has informed the Directorate General of Hydrocarbons it will not be able to ramp up gas production for KG DG beyond 50 MMSCMD for another year at least. In case RIL is unable to keep up with its earlier forecasts of gas production, the power and fertiliser projects will get an immediate hit. Gas transmission companies will also suffer a hit with lower gas transmission volumes.

However, the deficit of gas shall be compensated by RLNG imports. The R-LNG can bridge the gap of demand supply scenario. The only issue is the price of imported LNG that is expensive than domestic gas and is particularly cost sensitive to fertiliser, power, PNG and CNG sectors. Chairman PNGRB has also taken-up the issue of gas availability for CGD with Hon'ble Minister of Petroleum and Natural Gas. And, the government intervention should be able to improve the situation.>

What are the opportunities that GAIL Gas sees in PNGRB's soon to be announced guidelines allowing companies to set up standalone CNG stations in areas that do not have a CGD network of their own but are in proximity to a CGD network?

Standalone CNG station can be installed on highways where the trunk pipeline is running across or closer.

The CNG refueling facilities are limited and generally available only within the peripheries of the cities, which is considered to be major hurdle in further extending the coverage of CNG, hence it is essential to ensure CNG availability outside the city limit in order to promote CNG usage. CNG refueling facilities are needed to be provided for the public convenience so that the people from one city can freely move out to the other cities with CNG vehicles. Moreover it will not be out of context to mention herewith that government has also time to time expressed its desire to ensure the availability of CNG outside the city limit.

Setting up CNG stations along the highways shall give the desired boost to the CNG industry and help realise the long drawn aspiration to run the goods transportation vehicles on CNG to reap the environmental benefits and accrue the saving in crude imports.

What are the opportunities that GAIL Gas sees in PNGRB's soon to be announced guidelines allowing companies to set up standalone CNG stations in areas that do not have a CGD network of their own but are in proximity to a CGD network?

Standalone CNG station can be installed on highways where the trunk pipeline is running across or closer.

The CNG refueling facilities are limited and generally available only within the peripheries of the cities, which is considered to be major hurdle in further extending the coverage of CNG, hence it is essential to ensure CNG availability outside the city limit in order to promote CNG usage. CNG refueling facilities are needed to be provided for the public convenience so that the people from one city can freely move out to the other cities with CNG vehicles. Moreover it will not be out of context to mention herewith that government has also time to time expressed its desire to ensure the availability of CNG outside the city limit.

Setting up CNG stations along the highways shall give the desired boost to the CNG industry and help realise the long drawn aspiration to run the goods transportation vehicles on CNG to reap the environmental benefits and accrue the saving in crude imports.

(InfralineEnergy thanks M Ravindran, CEO, GAIL Gas Limited for sharing his valuable insights with our readers. The column 'In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)