MUMBAI: Oil and Natural Gas Corp has declined to participate in the stake sale of the pipelines company owned by Mukesh Ambani and other promoters of Reliance Industries Ltd but other state firms such as OilIndia and Gail India are evaluating the prospect.
The company, Reliance Gas Transportation Infrastructure (RGTIL), operates the $3.75-billion East-West pipeline that was built to deliver D6 gas to Karnataka, Maharashtra and Gujarat. It has appointed JPMorgan, Citigroup and SBI Caps as advisors for the stake sale, industry officials said.
“RGTIL’s bankers had approached us recently to discuss the possibility of ONGC picking up an equity investment in RGTIL but we declined as we did not see any value in the proposition as pipelines is not our core business,” a senior ONGC official told ET.
Gail, which is keen to develop a countrywide network of pipelines, has shown interest. “RGTIL has contacted us for an expression of interest in the ongoing stake sale of RGTIL and Gail has shown preliminary interest. We will be undertaking a techno-commercial due diligence where we will be taking a close look at all the issues affecting the company,” a senior Gail official told ET.
While ONGC does not want to make an investment outside its core business of oil exploration and production, Oil India Ltd is looking for new growth strategies.
“RGTIL has contacted us and we are interested in the opportunity, it is too preliminary to talk numbers now but we are looking at diversification from our core business of exploration and production and thus are keen to explore both organic and inorganic opportunities. We will be soon be conducting a thorough due diligence,” T K Ananth Kumar, Director, Finance, OilIndia told ET.
Mukesh Ambani is reported to be seeking a valuation of up to Rs 10,000 crore for the company. According to industry experts, the key issue affecting the stake-sale would be the steep fall in gas production at KG-D6, which has now hit an all time low of 28.16 mmscmd, the lowest level since RIL began output from the KG-D6 block in April 2009.
Also, RIL the operator has told the petroleum ministry that any incremental production is only possible by 2016. “In the long term, this could make sense for Gail which is primarily a pipeline company and currently its HBJ pipeline runs from the west to north, so RGTIL’S east-west pipeline could help it to establish a nation-wide footprint.
Also Gail could be looking at protecting its turf given that GSPL has recently won a couple of new pipeline contracts,” said an energy analyst from a prominent Mumbai-based brokerage house.
“This move could also be a part of the government’s decision to establish a central gas grid,” he added. “By exiting RGTIL, Mukesh Ambani is sending a clear signal about the potential of KG-D6 and the markets will definitely view this development in that light,” he added.
There are other key issues flagged by industry experts. “The east-west pipeline was initially built for a capacity of 80-120 mmscmd and now it is not even transporting half of that volume, so its long-term hire charges and tariffs could be impacted negatively,” said another oil and gas analyst.
“In the long-term, this acquisition could benefit Gail as Petronet’s new 5 mtpa LNG terminal in Ganagavaram (situated close to Kakinada) could receive cargo by 2018 and by then even RIL could have resumed some production to at least 50 mmscmd,” he added.
Also apart from RIL, other players in the east coast like ONGC, OILIndia and GSPC have not started any significant oil and gas production in the area as of now which puts a question mark on the immediate business opportunity in RGTIL’s pipeline assets.
RGTIL was set up as a wholly-owned subsidiary of RIL in 2003. In 2006 it became a privately-held company of Mukesh Ambani. RGTIL reported a net loss of Rs 210 crore on net sales of Rs 2,560 crore for the year ended March 2010. In 2010-11, RGTIL received Rs 652 crore as hire charges from RIL for the use of its pipelines to transport gas.