India's GAIL to Invest $5 Billion in Domestic and Overseas Expansion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian state-owned gas utility company GAIL (India) Limited (BSE:532155) (New Delhi) is set to expand overseas operations in a bid to tap the potential markets in Russia, China and Egypt. In addition, the firm also plans to extend its existing gas pipeline network in the country.

GAIL has announced a total capital expenditure outlay of $5 billion, which will be spread over the next three years. Of this expenditure, about $3.63 billion will be spent on enhancing domestic operations, with about $1 billion of this going toward setting up a compressed natural gas (CNG) corridor, covering about 230 cities in India. GAIL's domestic spending will also include increasing the existing 7,000-kilometer gas pipeline to 12,600 kilometers in the next three to four years.

GAIL, along with ITERA Oil and Gas Company (Moscow, Russia), is planning to establish a methanol plant in Russia. According to reports, GAIL is currently involved in a due diligence exercise for the venture.

As part of its operations in China, GAIL plans to set up gas distribution networks in select Chinese cities in partnership with China Gas Holding Limited (HKG:0384) (Hong Kong), in which GAIL owns a 10% stake. The final leg of the selection process involving 49 cities is currently under way. Based on the feasibility details collected by China Gas Holding, GAIL plans to set up joint ventures in a few cities where the process is found to be most viable.

GAIL is also exploring the gas distribution network in Egypt. The company has a strategic alliance with two of Shell's (NYSE:RDS.A) (The Hague, Netherlands) firms - Fayum Gas Company SAE (Cairo, Egypt) and Shell Compressed Natural Gas Egypt SAE (SCNGE) (Cairo) - for retail operations. GAIL has an equity participation of 19% in Fayum Gas and 22% in SCNGE. In order to benefit from the growing local gas supply markets in Egypt, GAIL plans to increase its holdings in Fayum.

The proposed CNG corridor project will be taken up by GAIL Gas Limited (Noida), a wholly owned subsidiary of GAIL set up with an equity investment of $40.4 million and additional funds of $60.6 million raised through debt. The subsidiary was formed in order to spin off GAIL's marketing and gas supply divisions into separate business units.

The CNG corridor project involves the development of retail gas distribution outlets along national and state highways at an estimated cost of $7.07 million and will also supply piped cooking gas for household use. The Petroleum and Natural Gas Regulatory Board of India has shortlisted six cities - Kakinada, Andhra Pradesh; Sonepat, Haryana; Kota and Dewas in Madhya Pradesh; and Mathura and Meerut in Uttar Pradesh - for the first phase of the CNG corridor project. GAIL will be bidding for all six cities in the first phase on the basis of its experience in developing gas pipeline infrastructure.

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