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Interview

with B.C. Tripathi, Chairman & Managing Director, GAIL

08.12.2010 / Energyboardroom

One of the main challenges India faces to sustain its economic growth is access to energy. As the head of GAIL, the backbone of India’s gas industry, what have been the company’s main contributions to secure the energy security India so desperately needs?

GAIL is India’s biggest supplier of gas, whether it is to petrochemical, fertilizer, power, or LPG plants, as well as city-gas distribution (CDG), currently covering more than 18 major industrial cities. The company is providing the major infrastructure backbone to all industries across the country, owning 75% of the Indian oil and gas transport infrastructure. Apart from the industries, GAIL has been the pioneer in providing gas to the common man, to consumers in cities and towns across India, as well as to the transport sector, benefiting a large share of the population.

The company has also been a pioneer in the CGD, as it set up eight joint ventures where GAIL provides essential capital, technology, and technical manpower. We have been pioneers in developing the applications of gas to the domestic, commercial, industrial and transport sectors; this has been GAIL’s greatest contribution to guaranteeing gas accessibility to the largest number of people in India.

The other intangible benefit GAIL has provided to India is in the development of its gas industry. When GAIL’s first project started in 1984, India didn’t have the necessary technology, consultants, or materials providers (such as pipes, compressors, and valves). Today India is one of the largest exporters of pipes in the world, having almost 25% share of the world pipes industry. This development has been provided by GAIL, as we gave pile of orders to all pipe manufacturers, we developed their capabilities and abilities, we financially supported them, and the result of that is that while India had no natural gas industry in 1984, now it has about nine to ten companies that are all leading exporters of pipes.

The same happened in the construction industry: India had no contractors in 1984. They came from places like France or Japan. Today, Punj Lloyd is one of the leading contractors in the world and there are more international level contractors that are able to lay pipelines not only in India but also in the Middle East, Europe and USA. When you look at the various equipment suppliers (such as gas turbines, compressors, wags), any item required in the industry is now produced in India and exported elsewhere. Hence, the other contribution that GAIL has provided to India over the last 25 years, apart from building the backbone infrastructure to the industry and supporting the energy supply, is the development of the Indian oil and gas value chain.

Since the establishment of GAIL in 1984 the Indian oil and gas industry has experienced major transformations, especially related to the market liberalization and modernization of the country’s major PSU’s. How has GAIL adapted to this new environment and helped shape it?

One of the main evolutions is that today India has a regulatory board in place (PNGRB) and GAIL, being the largest player in this field, welcomes the decision of establishing a regulatory board that laid down processes, systems and procedures to conduct the business. As far as GAIL is concerned, we are nicely placed to play a dominant role in the market and to take everybody along to further develop the whole gas-based industry.

Today the share of gas in the Indian energy basket is hardly 9-10% as compared to a world average of 24-25%. There is a lot of potential to grow to that level and there is a big scope for GAIL to expand. In the past, no other company was entering the gas industry. In the future, as the industry grows, other players will also definitely get some share in the gas business but GAIL, being the first mover, will still have ample opportunities to expand in all directions. Indeed, this is a very good time for GAIL: in the last 25 years we had a turnover of 25,000 crores rupees, but we are going to achieve more than that in the next four years. We currently have almost 8,000 km of pipelines and we are going to have 15,000 km by 2014/2015, almost doubling the infrastructure available.

With so much being built in the last few years, how have you transformed the old ways of doing business to GAIL’s current efficient-driven approach?

Indeed, in order to grow GAIL had to modernize itself. The company had to look into all its internal processes and systems and the various tools available for the office automation. For instance, we are already having complete operations on SAP. GAIL is very hi-tech in terms of applying the IT infrastructure available in the country. All our processes are mapped in the IT platform, making our systems very efficient. Also GAIL’s people have been slowly geared up to change their working culture and habits, and a thrive of change has been launched in the company.

When we talk about change I mean the way we do the business, how we deal with our stakeholders, and what are the internal processes and systems that need to be updated. At the same time, more delegation has been given to the employees down the loop, and new procedures and processes have been put in place. With these improvements I am sure GAIL is poised to continue its fast and efficient growth-track.

In regards to the financial strength, GAIL has a strong balance sheet that helps us leverage a good amount of financial resource from the market. GAIL has one of the best ratings in India, AAA+. As a result, GAIL is very well placed to play a dominant role in the Indian gas market.

GAIL is a leader in gas transmission, LNG, LPG, Petrochemicals, and is increasingly growing its activities in the upstream sector. Among all these activities, what have been GAIL’s main growth drivers in the last two years?

There are different elements that have contributed to GAIL’s growth in the last two years. One is the infrastructure development: as I said, every year we are adding thousands of kilometers of pipelines. Last year GAIL also took the decision to double its petrochemical plant capacity. This project has been put on fast-track and it has been executed as one of the fastest projects ever executed not only in India but also abroad. In exactly 36 months we have built the gas cracker plant. At the same time, GAIL is also establishing the LNG plant in Maharashtra from where we are planning to progressively bring LNG to India. The company has already sourced half a million tones of LNG, for the first time doing it independently, and we are now discussing various other major supply projects. GAIL intends to import five million tones of LNG in the next two to three years. That’s why we are gearing up GAIL’s infrastructure so the receiving terminals get ready and the pipeline infrastructure is in place in due time.

To sum up, GAIL is focusing on three fronts: doubling the pipeline capacity; doubling the petrochemical plant capacity; and immediately commissioning the LNG terminal and obtain a long-term contract to supply LNG.

Apart from that, we have already taken the decision to invest 15% of our annual CAPEX in the upstream sector, as GAIL wants to consolidate its position in this industry. The company currently has 29 blocks, two of which we are operator. GAIL is slowly acquiring the skilled manpower in the upstream sector so it can leverage the interest in these 29 blocks. Six of them already have a discovery, now we want to quickly monetize them.

For CGD, GAIL already has eight joint ventures and when the first bidding round was announced we got four more towns where the city-gas infrastructure is being laid. When new bids are announced for new cities GAIL will aggressively participate on them as well.

How do you ensure GAIL’s efficiency when it is expanding to so many different areas? Isn’t it counterproductive to be active in all these different sectors?

I would not define it as counterproductive: all of these activities are along the same gas value chain; they flow and support each other. Once we have a pipeline we need the gas to flow, so we need either to buy LNG or to go in the upstream sector.

At the same time, since GAIL has its own half-a-million-tones petrochemical plant, which has all basic infrastructure available, it can just double its capacity at a much lower cost than setting up a new grassroots plant. The incremental cost required to go to one million tones is less, so GAIL is trying to leverage on its existing assets.

In the downstream sector, we have the pipelines and we have catchment areas available (almost 15,000 km catchment areas for the trunk pipelines). Therefore, GAIL can leverage the market of major cities and towns nearby and supply city-gas to its consumers. The PNGRB has plans to make CGD available to more than 200 cities, and even if it is not economically viable in all cities, GAIL would like to play a dominant role where it will make an economic sense.

In order to finance these projects, GAIL’s own resources might not be sufficient. How do you convince financial markets to provide the company with the necessary resources to finance its strong growth and ambitious infrastructure projects?

Firstly, GAIL is basically a debt-free company: this year our internal generation will be one billion dollars. With our current AAA+ rating, GAIL is already well recognized in the international financial markets as a company with a sound financial base and a sound balance sheet. On one side, GAIL is in the business of the gas pipelines, which is a regulated business with a short return of 12% on the investment. On the other side, in the petrochemical part, India still imports 25-30% of the petrochemicals, and the market is growing at a rate of 12-13%, so there is a substantial demand emerging. Hence, also the petrochemical sector, which contributes to one third of our profits, gives a very good comfort to all of our investors. Moreover, GAIL has the only gas-based petrochemical plant in this country, so our cost of production is comparatively the lowest in India. Both our experience and performance over the last two decades have reassured investors of GAIL’s unique attractiveness.

When the government evaluates the functioning of the company, GAIL is always rated as one of the excellent companies in terms of performance. The profit per employee is among the highest in India, as we have a lean and thin organization. GAIL has a very good IT infrastructure available and it is one of the thinnest organizations in terms of human resources. Actually, GAIL has a smaller number of people, but they all are highly experienced and skilled. Moreover, the average age in the company is one of the lowest in India, around 38-39 years old, and a large amount of people are in the age bracket of 30 to 45.

What is your strategy to attract the best talents and retain them within GAIL?

GAIL is currently recruiting young people, especially engineers, chartered accountants, and MBA professionals. We have drawn a systematic plan that every year we will be inducting new human resources to supplement this growth plan. The company targets premier institutions in the country and recruit people every year directly in their campus.

We have also created the GAIL Training Institute, where we impart a two-months training program before the employees are sent to various plants and project sites. After their appraisal they are confirmed into the company. It is a very well-structured training program, and depending upon their attitude, they are sent to different areas, both technical ones in the petrochemical and LPG plants, pipelines, gas turbine stations, or they are moved into business development and marketing.

Being a government organization, GAIL has set the pattern of pay structure. There are two types of pay, one is a basic salary, and the second is the salary related to the profit. Since GAIL is a very profitable company, a share of its profits is distributed to the employees, and since we are very little in numbers and our profits are comparatively large, we are able to give them 100% performance-related pays. That makes GAIL definitely one of the best employers of India.

You have highlighted very ambitious plans for the coming years, from increasing your pipeline network to more than 15,000 km, to helping India achieve its target to have natural gas as 25% of its energy matrix. Could you summarize your main ambitions and expectations for GAIL in the next three to five years?

The immediate ambition is in terms of revenues: I expect that in the next four years GAIL’s revenues and profits will more than double.
My second ambition is that GAIL should not only be a pan-Indian company but we would like to have a strong presence in international markets. GAIL has recently opened an office in Egypt, as we are looking for business opportunities there. We already have equities in three companies in Egypt and we are trying to grow more this market. The company is also looking for opportunities in Ghana and in Trinidad & Tobago, while in Nigeria GAIL has been shortlisted to develop the Nigerian Gas Master Plan. In the next three years GAIL should have some significant presence in the international markets and acquire good properties, not only in the West, but also in the East as we are looking for opportunities in Australia and in Indonesia.

Looking at the financial numbers, GAIL currently has almost $7 billion worth projects in hands, out of which almost $5 billion are into execution. The remaining $2 billion will be rolled out in a few months time. My objective is that every year GAIL should add projects worth $2 billion. Last year GAIL started the petrochemical plant expansion project, which was almost $1.75 billion worth of investments. During 2011/2013 we should look into new business areas to invest in projects worth $2 billion. Looking into the balance sheets and into GAIL’s commitments, my impression is that the company will be able to raise almost $2 billion worth of loans from the market at a very comfortable rate, and GAIL is generating almost $1 billion internally. Therefore, every year GAIL can support projects worth of $3 billion!

What will be your final message to the readers of the Oil & Gas Financial Journal, who in the end of the day are the investors willing to be part of GAIL’s success story?

My final message is that GAIL has a sound technical and financial background and a very ambitious growth strategy, and India has immense opportunities to grow in this sector. GAIL is looking not only to grow in the domestic market but internationally. Hence, we would like to have partnerships with companies that are ready to work with us in the international arena, to source more LNG, for instance. It could be either an upstream investment for producing or near-producing blocks, or it could be LNG and petrochemical plants. What GAIL can bring-in is its unique 25 years of experience and expertise in one of the world’s most challenging, but most promising, energy markets.

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