Planning Commission criticises GAIL for shifting focus from core activity

12-Mar-09

The Planning Commission has criticised Gail India (market leader in gas transportation) for shifting focus from its core activity of gas transmission to non core activities. The government-owned company's core business contributed only 10.6% of its total revenues during April-December 2008. The Planning Commission, however, has pointed out a mismatch between the company's investments in pipelines and gas transported. Gail has proposed to invest Rs 10,326.83 crore in 2007-12 for creating new pipelines to achieve gas throughput of 96.76 mln standard cubic metres per day (mmscmd) which is below the investment target of 99.01 mmscmd in the Tenth Plan (2002-07). In the Tenth Plan, Gail invested Rs 6,461.86 crore (against the target of Rs 8,413.52 crore) to achieve 77.28 mmscmd throughput. Gail's transmission tariffs were designed to yield large surpluses with the objective of creating pipeline infrastructure across the country (national gas grid) on a common carrier basis. However, Gail has deployed these surpluses in other areas like petrochemicals, telecom and exploration & production (E&P) activities. The company has refuted the allegation saying that natural gas transportation being a low-margin, low-risk business, the revenue and profit from the same is likely to be always lower compared to other forms of businesses. The transmission tariffs were also decided by the Tariff Commission as per the international practices with only 12% return on investment basis and they are designed to yield only reasonable surplus. The company decided to venture into E&P activities to ensure gas supply in the future, as non-availability of natural gas was a constraint in the development of pipeline infrastructures across the country. Justifying its decision to venture into non-core business, Gail said that it's petrochemicals business earns a third of its profit (before tax). These activities have been yielding good returns which are being pumped in for building the national gas grid.