GAIL

India
Ltd.
Company
Analysis

Dimple Singh
Date: 20 Nov 2009
Company overview

The company was previously known as Gas Authority of India Ltd. It is India's
principal gas transmission and marketing company. It was set up by the
Government of India in August 1984 to create gas sector infrastructure. GAIL
India is the country’s largest gas transmission company and handled 82
million standard cubic meters per day (mmscmd) out of the 111 mmscmd of
gas supplies in FY08.

The company has a pipeline network of 7,000 kms in place. Its pipeline is the
lifeline for major gas consumers from the power and fertilizer sectors. It has
also ventured into upstream gas exploration business in order to reduce
dependency on a single source of supply and has secured 30 exploration
blocks. GAIL is a significant player in downstream petrochemicals business
with a production capacity of 410,000 tons per annum. It is also an early
mover in city gas distribution with 8 joint ventures and a wholly owned
subsidiary, GAIL Gas, is being incorporated. The company has plans to enter
into more than 230 cities.

GAIL is listed by Forbes as one of the world's 2,000 largest public companies
in 2007.

GAIL commissioned the 2800-km Hazira-Vijaipur-Jagdishpur (HVJ) pipeline in

1991. During 1991-93, three liquefied petroleum gas (LPG) plants were
constructed and some regional pipelines acquired, enabling GAIL to begin its
gas transportation in various parts of India.

GAIL began its city gas distribution in New Delhi in 1997 by setting up nine
compressed natural gas (CNG) stations.

In 1999, GAIL set up northern India's only petrochemical plant at Pata.

Company Profile

GAIL (India) Limited is India's flagship Natural Gas company, integrating all
aspects of the Natural Gas value chain (including Exploration & Production,
Processing, Transmission, Distribution and Marketing) and its related
services. GAIL is also expanding its business to become a player in the
International Market. The company dominates the gas sector, transporting
95% of the total piped gas. It also operates seven plants to process natural
gas into LPG, apart from having a small presence in the petrochemicals and
oil & gas exploration sectors. Company has expanded its operations into gas
processing, petrochemicals, liquefied petroleum gas transmission and
telecommunications. It has also extended its presence in power, liquefied
natural gas re-gasification. Company has set up Gas Technology Institute

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near Delhi. This Institute is fully functional with well-equipped laboratories for
research and development (R&D) related mainly to the gas sector. It would
pursue joint R&D projects in India and abroad in association with oil and gas
companies, research institutions and universities.

Organization structure:

Gail organization consists of board of directors as follow;

GAIL MANAGEMENT

BOARD OF DIRECTORS

DR. U. D. CHOUBEY

CHAIRMAN & MANAGING DIRECTOR

SH. R. K. GOEL SH. SANTOSH KUMAR

DIRECTOR (FINANCE) DIRECTOR (PROJECTS)

SH. B. C. TRIPATHI
SH. A. K. PURWAHA DIRECTOR
(BUSINESS DEVELOPMENT)
DIRECTOR (MARKETING)

PART TIME DIRECTORS

SH. S. SUNDARESHAN SH. D. N. NARASIMHA PROF A.Q. CONTRACTOR

RAJU

DR. U. K. SEN
DR. A. K. KUNDRA DR. AMIT MITRA

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 CHIEF VIGILANCE OFFICER COMPANY SECRETARY

SH. N. K. NAGPAL
SHRI ARUN SINGHAL

Business description in brief

Currently the business set up is as such

• 7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other
liquid Hydrocarbons.

• 1,922 km of LPG Transmission pipeline network with a capacity to

transport3.8 MMTPA of LPG

• 13,000 km of OFC network offering highly dependable bandwidth for

telecom service providers.

• 6,700 km of Natural Gas high pressure trunk pipeline with a capacity

to carry 148 MMSCMD of natural gas across the country

• North India's only gas based integrated Petrochemical complex at Pata

with a capacity of producing 4,10,000 TPA of Polymers

• 27 oil and gas Exploration blocks and 3 Coal Bed Methane Blocks

• 13,000 km of OFC network offering highly dependable bandwidth for

telecom service providers

• Joint venture companies in Delhi, Mumbai, Hyderabad, Kanpur, Agra,

Lucknow, Bhopal, Agartala and Pune, for supplying Piped Natural Gas
(PNG) to households and commercial users, and Compressed Natural
Gas (CNG) to the transport sector

• Participating stake in the Dahej LNG Terminal and the upcoming Kochi
LNG Terminal in Kerala

• GAIL has been entrusted with the responsibility of reviving the LNG
terminal at Dabhol as well as sourcing LNG

• Established presence in the CNG and City Gas sectors in Egypt through
equity participation in three Egyptian companies: Fayum Gas Company
SAE, Shell CNG SAE and National Gas Company SAE.

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 • Stake in China Gas Holding to explore opportunities in the CNG sector
in mainland China

• A wholly-owned subsidiary company GAIL Global (Singapore) Pte Ltd in

Singapore

Market share in India

Leader in Transmission

It enjoys the market share in India of

• 85% of the natural gas market

• 88% in gas transmission

• 15% of petrochemical consumption

The company enjoys a market share of 88% in the natural gas and LPG
transmission. Currently it has huge trunk pipeline of the length of around
5,400 Kms across various regions in India. The capacity of the pipeline is to
carry 130 mmscmd of natural gas of which it carried 77mmscmd of natural
gas. Significant contribution arrives from the HVJ pipeline with the length of
2,800 km and carrying capacity of around 60 mmscmd. 2,800 km long Hazira
– Vijaipur - Jagdishpur (HVJ) pipeline and 610 km Dahej-Vijaipur pipeline
(DVPL) cater to all the gas based power plants, fertilizer plants, and
industries along the entire West-North corridor of India.

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Source-integrated energy policy

Revenue generated from various sectors.

The exploration business has an advantage of high margins. In spite of that

the revenues are bound to increase with exploration being added to the
portfolio. The transmission and petrochemical business is bound to benefit
from the exploration venture due to vertical integration.

The polymer production capacity of Pata has increased from 3, 10,000 TPA to
4, 10,000 TPA by addition of new cracker furnace and a new polymer unit.
Petrochemical is one of the major thrust areas of your Company and is
contributing significantly in the profitability of the Company.

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Source-annual report2007-08

The business of the GAIL is divided in the six

segments named as Gas transmission, Gas trading,
LPG transmission, Petrochemicals, Liquid HC and
unallocated sector. The revenue for gas
transmission segment increased by 4% in
comparison to 2006-07, similarly for the Gas
trading sector it increased by 8%. LPG segment
seen a growth of 12 % while the petrochemicals
sector saw growth of 18%, Unallocated sector saw
the highest growth of 76% followed by Liquid HC of
33%.This shows the success path of company.

Subsidiaries and Joint ventures

Company has been the pioneer for City Gas

Projects in India. With natural gas emerging as the
fuel of choice in the country, Company believes
that the next decade will belong to the city gas. It
was the first Company to introduce City Gas
Projects in India for supplies to households,
commercial users and for the transport sector by
forming Joint Venture Companies.

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 Subsidiaries are as follow:

GAIL Gas limited

Company has formed a wholly owned subsidiary

named ‘GAIL Gas Limited’ for implementing City
Gas Projects and CNG corridor in the country. The
subsidiary company will act as a vehicle for bidding
for laying pipeline infrastructure in the country.

GAIL Global (Singapore) Pte. Limited

Company has a wholly owned subsidiary, namely,

GAIL Global (Singapore) Pte. Ltd. to manage
investments abroad. Company is looking for further
business opportunities through this subsidiary
company.

Brahmaputra Cracker and Polymer Limited

Company has 70% equity share with Oil India

Limited (OIL), Numaligarh Refinery Limited (NRL),
and Govt. of Assam, each having 10% equity share.
The authorized capital of the company is Rs. 1,200
Crores. A Feedstock Supply Agreement has been
signed between Brahmaputra Cracker and Polymer
Limited (BCPL), and all the three suppliers viz., Oil
and Natural Gas Company Limited, Oil India Limited
and Numaligarh Refinery Limited. Financial closure
for the project is likely to be completed during the
year 2008-09.

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 Joint Ventures

Aavantika Gas Limited (AGL)

GAIL and Hindustan Petroleum

Corporation Limited (HPCL) for
implementation of City Gas
Projects in the cities of Madhya
Pradesh.

AGL has started project

implementation activities in the
city of Indore. Company has
AGL is a Joint 22.5% stake in the Company
Venture of along with HPCL as equal
partner.

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three

Auto LPG stations in Hyderabad
and one Auto

LPG station in Tirupathi. It is

currently operating six CNG
stations in Vijayawada and
three CNG stations in
Hyderabad. Company has
22.5% stake in the company
along with HPCL as equal
partner.

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 Central U.P. Gas Limited (CUGL):

CUGL is currently operating five

CNG stations in Kanpur, one
CNG station in Bareilly and one
CNG station in Kanpur is under
commissioning. CUGL is
building MDPE network for
supply of PNG to domestic,
commercial and industrial
sectors in the city of Kanpur.
Company has 22.5% stake in
the company along with BPCL
as equal partner

Green Gas Limited (GGL):

GGL is currently operating four

CNG stations in Lucknow and
three CNG stations in Agra.
GGL will also take up project

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 implementati of gas availability and project
on in other viability. Your Company has
cities of 22.5% stake in the company
Western UP along with IOC as equal
on the basis partner.

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to

around 1 Lac domestic, 276
commercial, 16 small industrial
consumers and CNG to over
1.35 Lacs vehicles through 153
CNG stations. IGL is catering to
world’s largest CNG bus fleet of
over 11,000 buses in Delhi.
Company has 22.5% stake in
the company along with BPCL
as equal partner

Mahanagar Gas Limited (MGL)

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 catering to over 1.85 Lacs
vehicles spread

over Mumbai, Thane, Mira-

Bhayandar and Navi-Mumbai
areas besides supplying PNG to
over 3.40 Lacs domestic, 907
commercial and 36 small
industrial consumers. Company
MGL has set has 49.75% stake in the
up 128 CNG company along with British Gas
stations as equal partner.

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of your

Company and Bharat Petroleum
Corporation

Limited (BPCL) for

implementation of City Gas
Projects in Pune city. MNGL is
developing necessary
infrastructure for supply of CNG
and PNG in the city. Company
has 22.5% stake in the
company along with BPCL as
equal partner.

Petronet LNG Limited (PLL)

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 PLL was formed for setting up
of LNG import and
regasification facilities. PLL has
a long term LNG supply
contract with Ras Gas, Qatar for
import of 7.5 MMTPA. PLL Dahej
terminal is being expanded to
10 MMTPA capacity. Company
has 12.50% stake in the
company along with BPCL, IOC
and ONGC as equal partners.

Ratnagiri Gas and Power Private Limited

(RGPPL)

RGPPL is a Joint Venture Company has made an

Company between your
Company, NTPC,
Financial Institutions and
MSEB. Your Company has
28.33% stake in the
company along with
NTPC as equal partner.
The capacity of the
Ratnagiri Gas & Power
Station is 2,150 MW.
investment of Rs. 500
Crores and has approved
additional equity of Rs.
475 Crores to RGPPL, out
of the Rs. 475 Crores; an
amount of Rs. 92.90
Crores has been paid
during the month of May,
2008.

Tripura Natural Gas Company Limited (TNGCL)

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 TNGCL is presently supplying gas to 6600 domestic, 104
commercial, 21 industrial consumers and has set up one
CNG station in Agartala city. Company has 29% stake in
the company. Company has approved formation of JV for
City Gas Projects in Vadodara with Vadodara Mahanagar
Seva Sadan (VMSS) with 26 percent equity, while VMSS
will have 24 per cent equity. The balance 50 per cent
equity will be held by strategic investors and public. A JV
agreement has also been signed with HPCL for city gas
projects in Rajasthan.

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Business operation

Gail India

Downstrea
Upstream Midstream Overseas
m
Operation Operation Operation
Operation

Infrastructur
Petrochemical
e
(LPG)
(Pipeline)

1) Upstream Operation
Overview

Every cloud has a silver lining and every adversity hides an opportunity. GAIL's
Exploration and Production (E&P) unit was born in just such a scenario. As the
Indian Economy opened up around the year 2000, the business environment
changed dramatically. For GAIL, liberalization meant competition in core business
i.e. midstream and downstream national gas distribution No longer could they rely
on statutory support mandating secured sources of Natural Gas. The reserves
contained in existing contracted fields were fast depleting. Apart from securing
sources for Natural Gas, there were other compelling reasons for GAIL to get into
E&P:

• Integration in supply-chain

• Large gap in Gas demand and supply

• National Gas security

• Balancing of Business portfolio

• Global opportunity

So that GAIL ventured into E&P in 2001. At the end of 2007-08, it has invested Rs.
11.5 billion in this segment. It is involved in oil & gas exploration activities over
acreage of 1.7 square km. It has participating interest ranging from 10 to 80
percent in following.

24 domestic blocks

3 overseas blocks

3 CBM

GAIL is currently participating in 27 exploration blocks, in Basins such as Mahanadi,

Mumbai, Cambay, Assam-Akaran, Tripura Fold Belt and Cauvery. GAIL has
partnership in these blocks with various companies such as ONGCL, GSPCL, OIL,
Hardy Exploration & Production, Petrogas, JOGPL, Daewoo, OVL, IOCL, Korea Gas
Corporation, Hallworthy, BPCL, HPCL and Silver wave. GAIL also has stake in 3
overseas blocks (A-1 and A-3 blocks in Myanmar and Block-56 in Oman).Of these,
nine are offshore blocks and eighteen onshore blocks, of which 13 are deepwater
and 5, are shallow water.

Coal Bed Methane (CBM) is stored in coal seams and was generated during the
process of coalification. It occurs within these seams either as free gas in fractures
or in dissolved form in water. The consortium of GAIL (India) Ltd., Arrow Energy
(India) Pty Ltd., EIG Energy Infrastructure Group AB has been awarded 3 CBM Blocks
in CBM-III Bidding round. The Tata Power Company is also a consortium partner in
two of the awarded blocks. These blocks are in Rajmahal (Jharkhand), Mand Raigarh
(Chattisgarh) and Tata Pani Ramkola (Chhattisgarh)

2) Midstream Operation (Petrochemicals)

Overview
The company has seven gas LPG processing plant with total capacity of 1.2 mtpa 4
plants are situated along the Hazira Vijaipur Jagdishpur pipeline (two at Vijaipur in
Madhya Pradesh , one at vaghodia in Gujarat, and one at oriya in Uttar Pradesh ,
and one each in Lakwa Assam , Usar , Maharashtra an d Gandhinagar Gujarat). The
total liquid hydrocarbon production was over 1.348 million tonnes, which included
1.043 MT of LPG 0.156 tm of propane and 0.074 tm of pentane the company’s
board of director has recently approved them doubling capacity of its pata
petrochemical complex in UP to 0.8 mtpa .the installed polymer capacity at pata is
0.41 mta, which will be increased by leveraging existing facility and augmenting
them. Company is setting up 280000 tpa petrochemical plant in Assam at an
investment of Rs 54.6 billion. It has also signed an agreement with HPCL, OIL, Mittal
investment and France total to set up another petrochemical complex and crude oil
refinery at Vishakhapatnam in AP.GAIL has a 70% equity stake in Brahmaputra
cracker and polymer limited. The other equity partners are OIL, Numaligarh
Refinery Limited and the Govt of Assam is having a 10% equity stake

Pipeline Operation

Interstate pipelines provide open access for shipment of natural gas. Gas enters an
interstate pipeline from gathering systems and from interconnecting pipelines.
Beginning at individual wellheads, gathering systems usually consist of smaller
diameter pipe operating at lower pressure. Gas conditioning is usually performed to
reduce contaminants such as water from gathered gas before it is compressed into
the transmission system. Gas leaves the transmission system through delivery
points to other interstate pipelines, local distribution companies and directly to end
users such as industrial facilities and power plants. Local distribution systems
deliver gas to residential, commercial and industrial end users.

The basic components of an interstate pipeline include steel pipe, valves, and
compression, processing and storage facilities. Pipe sizes vary widely with much of
the pipe in the 20-inch to 36-inch diameter range and wall thickness of about one-
quarter to one-half inch. A typical range of operating pressures for a transmission
system is 300 to 1440 psig. Powered by natural gas or electricity, compression is
one of two types: reciprocating or centrifugal. Processing facilities extract
undesirable contaminants (such as hydrogen sulfide and water) and marketable
hydrocarbons (such as propane and gasoline). Storage facilities have been
developed from depleted oil fields, coal mines, salt domes, aquifers and reefs.
These facilities can be used for peak-shaving hourly demands and short-term, as
well as, seasonal storage of gas.

Much of the gas that is transported on interstate pipelines is nominated, that is,
scheduled in advance of actual gas flow. Deliveries into local distribution companies
that serve weather-sensitive markets, however, cannot be known with absolute
certainty. Such demand is met in part with "no-notice" service, which is usually
supplied from inventories of the customers' gas, which is stored in the pipeline's
storage facilities.

3) Downstream operation

Overview of CGD Operation

Potential of City Gas Networks in India

Natural Gas usage in Indian cities has been limited primarily due to the scarcity of
supply. However this scenario is undergoing change with several LNG
projects/transnational pipelines under implementation, which together with new
domestic Gas finds are expected to shore up the supply deficit in the next few
years. Meanwhile the market for city gas distribution is also set to grow at an
accelerated pace. The CNG demand got a boost with the Supreme Court directive
on pollution reduction in 12 major cities in India. The domestic segment is also
expected to grow with the government's intentions to remove the subsidy on LPG
cylinders in a phased manner in 3-5 years making piped gas even more economical.

4) Overseas Operation

GAIL has a 10 % equity stake in block A! Ink Myanmar where huge gas reserve has
been discovered recently. It also has a 10 % stake in block A3. It has stake in block
56 in Oman. However GAIL’S share in the blocks has been reduced following
Myanmar’s national oil company exercising its “step in” right’s to 8.5%. In 2003 -04
GAIL acquired equity stakes in CGD project of fayum gas and shell gas in the Egypt.
GAIL has setup a wholly owned subsidiary on Singapore , christened GAIL Global
private limited, two undertake overseas investment , the subsidiary a 15% equity
stake in the Egyptian national gas company- one of the largest natural gas
distributing companies in the private sector in Egypt. The company also has a 50%
stake in a JV formed with china gas holding limited to undertake projects in china,
India and other countries.
SWOT ANALYSIS

Strengths: are as follow

• GAIL (India) LIMITED is the country’s largest gas transmission company in

India with 88% market share. Through that Gail acts as a single gas
transmission company, and taking the leverage through this dominance.

• GAIL (India) LIMITED currently owns and operates around 58% of the total
onshore pipeline network, which shows its potency.

• GAIL is present in complete value chain of Gas business, through

transmission, gas processing to marketing.

• Gail (India) has signed a technology license agreement with Mitsui Chemicals
for a second high-density polyethylene (hdPE) plant at its Pata petrochemical
complex in Uttar Pradesh, India.

• Vertical integration in complete Gas business leading to cost reduction.

• GAIL is dominating player in natural gas trading. Through 85% market share
Gail is showing its control in the market.
 • Major petrochemicals involvement is also showing its strength.

• Strong Revenue Growth (turnover of Rs. 18,008 Crores in FY 2007-08, a 12%

increase, as against Net Sales of Rs. 16,047 Crores in the previous year)

• GAIL is Going global in exploration business, company is growing in all its

business segments

• Controls gas transmission infrastructure for example: Pipe lines.

• Share of LNG import projects and strong and Diversified Asset Portfolio

Weakness: are as follow

• The biggest problem which is faced by GAIL is “High Subsidy burden” which
is reducing LPG realization. As a PSU

• Gail has to accept all rules and regulation of government.

• There is no tax benefit with respect to Section 80IA since Demerger is

delayed.

• GAIL has less visibility over the contracts for new expansions in transmission
business.

• Gail has very limited financial or operational freedom as a government

undertaking.

• Cost and efficiency disadvantages

• Lack of upstream gas exposure

• Limited Exposure to Global Markets

• Weak Capital Returns

Opportunities:

• GAIL finds huge gas in KG and Mahanadi basin increasing the availability of
natural gas.

• Petrochemical industry expected to grow at CAGR of 17% over a period of 3

years. This growth need petrochemicals capacity expansion
 • The overall gas production is set to double within 3 to 4 years thus demand
meeting the supply .This may result in government deregulating the natural
gas prices.

• Leveraging pipelines for Telecom.

• Entering into exploration business, which is going to boost the realization.

• Potential for efficiency gains

• Transmission system upgrading/expansion

• Strong domestic energy demand growth.

• Increasing Demand for LNG

• Expanding Indian Natural Gas Market

Threats:

• Rise in natural gas prices can lead to reduction in margin in petrochemical

business. The main problem is that the price of gas is regulated by the
government.

• Domestic marketing makes the company subject to threat of subsidy burden

and pricing policies of petroleum ministry.

• Petrochemical prices may go down in the next two years on account of

capacity additions in the industries.

• Rising investment requirement for new upcoming project.

• Changes in national energy policy.

• Intense Domestic Competition

• Shift to Alternative Sources of Energy like hydro energy, nuclear energy, wind
energy, thermal energy.

• Fluctuation in Gas and Petrochemical Prices