GAIL India Chairman's Speech > Engineering - Heavy > Chairman's Speech from GAIL India - BSE: 532155, NSE: GAIL

GAIL India

BSE: 532155|NSE: GAIL|ISIN: INE129A01019|SECTOR: Oil Drilling And Exploration
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Mar 15
Chairman's Speech (GAIL India) Year : Mar '16
Dear Shareholders,
 Events that unfolded during the previous year both internationally and
 in India have the potential to alter the structural landscape of the
 energy sector. The year has been a unique departure from earlier times
 of fossil fuel price compression as the commodity price decline has
 coincided with a strong advocacy and emergence of clean energy
 alternatives at competitive levels with a promise of improvements along
 the cost curve. Sustained investments have led to the highest addition
 of renewable energy capacities, mainly solar and wind, in a single
 year. At the same time, the surfeit production of Natural Gas from
 shale in the USA accompanied by softer pricing power of the commodity
 has seen significant shift towards gas based power generation as the
 nuclear power stations continue to be mothballed in large numbers.
 Ironically Japan witnessed restart of nuclear power facilities and
 switch to alternative fuels leading to significant de-growth in their
 LNG off take during the period.
 Interestingly for India, there has been a serious policy push for
 expanding gas based infrastructure. Government of India (GoI)
 implemented measures in swiftness to increase PLF of gas based units
 and even helped revival of stranded power plants based on gas. On the
 retail side, gas gained favour with a clear direction of being given a
 numero uno priority in domestic gas allocation for household and CNG
 segments. Gaining traction from such policy measures, the thrust shall
 be on improving penetration of Natural Gas as a clean and a choicest
 fuel in major cities and towns in the near term as a first stage
 strategy. Along-side, India has also volunteered to advance carbon
 based emission target achievement to 2022 from 2030 and has embarked on
 a massive drive to augment renewable power capacities of about 175 GW
 on the COP-21 framework. Exciting opportunities lay ahead for Natural
 Gas to complement the targeted renewable power infrastructure.
 Progressive integration of such resource capabilities could lead to a
 demonstrable win-win situation for all stakeholders.
 These developments are in the larger backdrop of a year- on-year
 decline of 45-50% in crude oil prices and a weak growth of the global
 economy with downside risks playing out. Full impact of Brexit and
 China''s debt levels with accompanied demand destruction is yet to
 unfold and sketchy at this stage. Although crude oil gained growth from
 demand side, with an overhang in production and an evasive consensus
 among the OPEC member nations along with a wide chasm between OPEC and
 other crude producing counterparts, the purchase power balance remains
 shifted towards the buyers'' club. Consuming economies are enthused by
 this long awaited reprieve to strengthen their balance-sheets. On the
 LNG side, newer long-term contracting deals grazed around 24%,
 signifying a predominant tilt towards spot and short term deals. Not
 very clear at this stage on the sustainability of softer price
 structure of energy commodities, all it has resulted in is negligible
 investments into construction of newer infrastructure facilities along
 the NG chain.
 In current times with multitude of game changing and disruptive forces
 playing out concurrently GAIL is rooted to its conviction to pursue
 National priorities of strengthening drivers of growth along the
 Natural Gas value chain with thrust on - Bulk trading & Retailing of
 NG, simultaneous development of transmission networks and expanding
 petrochemicals market with a wide range portfolio. The company
 continues to enjoy leadership position in the Natural Gas Trading and
 Transmission segments in India and with a formidable portfolio of over
 1.2 MMTPA polyethylene and polypropylene-based polymer segment in the
 country it is ready to offer broader grade slate for various processing
 Globally LNG trade witnessed a growth of about 2% in step with the
 modest growth in world economic activity by a tad over 3%.  The
 continued decline in the commodity price has been due to oversupply
 from newer projects and a weaker demand from the major consuming
 nations in Asia. These events accompanied by declining crude oil trade
 prices along with a surge in the non-long term trade volumes by about
 29% during the period, have led to a fall in Asian spot LNG prices by
 nearly 50% over the previous year.  Even though LNG imports by India
 remained stagnant at 14.7 MMTPA over the previous Calender Year yet it
 recorded the sharpest increase in the spot and short term trades by
 clocking 3 MMTPA. The Long Term Regas-LNG contract with the upstream
 suppliers was re-negotiated with the support of the nodal Ministry
 providing the much needed relief to the end consumers.  Significant
 policy measures and schemes for enabling pooling of gas in the
 Fertilizer sector and instituting a mechanism for e-bid based RLNG
 procurement for Power sector by GoI has provided fillip to the market
 sentiment. This is a monumental step in improving RLNG consumption.
 The year gone by also witnessed shifts in policy conversation around
 the clean energy goals and the need for adhering to INDC targets under
 COP-21 understandings towards greater reduction in carbon emissions by
 2030. The ambitious targets of solar and other renewable power based
 expansion by 2022 for India, provides a strategic opportunity to
 synchronize gas power generation targets to ensure an un-interrupted
 grid supply for supporting envisaged economic growth. Your Company is
 geared up to support GoI initiatives under such integrative
 opportunities based on Natural Gas to contribute effectively in
 attaining climate change objectives.
 A slew of structural economic measures and a healthy growth of the
 domestic market led India to stand out as one of the fastest growing
 economies in the world during the last fiscal year with a nominal GDP
 growth rate of 7.3% over previous FY The strong guidance by various
 external and internal sources projects strong economic performance in
 the current financial year as well with about 7.5% growth, year on
 year. In an environment of global uncertainty and recessionary trend
 plaguing many advanced and emerging economies, strong domestic demand
 on the back of continued lower levels of commodity prices could
 contribute in not just an uptick in the Indian GDP growth but shall
 also improve primary energy consumption level including LNG
 characterized on price elastic demand.
 Given the broader context of a turbulent operating environment in the
 sector with a sluggish performance and outlook of global macro-economic
 activity having led to the global giants/peers witnessing on an average
 a reduction in revenue by over 35% and profits being wiped out by over
 90% to even posting losses, GAIL has delivered a ROCE of 8.92%. GAIL
 witnessed operating headwinds of tremendous magnitude during the period
 with RLNG consumers rejecting long term pricing structure, drastic cut-
 back in domestic Natural Gas allocation to petrochemicals manufacturing
 unit at Pata, discounted marketing & transmission margins for
 incremental volumes under e-bid RLNG scheme for power sector, 40%
 reduction in LPG prices, a prolonged period of stabilisation of the
 petrochemicals expansion project accompanied by decreasing product
 prices have contributed to significant downward pressures on earnings.
 In our commitment to delivering value, even in such challenging times,
 your Company''s Board of Directors have declared a 55% dividend rate for
 FY 2015-16.
 Turnover posted for the year (net of excise) was Rs. 51,614 crores
 compared to Rs. 56,569 crores in the previous fiscal period. Profit
 Before Tax (PBT) for the year was Rs. 3,173 crores as against Rs.
 4,284 crores, whereas Profit After Tax (PAT) clocked Rs. 2,299 crores
 vis-a-vis Rs. 3,039 crores in the previous fiscal year.
 As shared in the last year''s report, the journey under Project
 ''Sanchay'' has been diligently worked upon by the various business
 segments and many of the cost optimisation projects identified are
 yielding results. Within the next three years, progress is expected to
 sequentially contribute about USD 140 million at today''s cost factor
 and is duly recognised by the Company''s Board.  Several other
 initiatives such as ensuring stable and low cost supply of gas/RLNG to
 the petrochemical production are contributing towards better margin.
 In addition to progressing on the construction of the
 Jagdishpur/Phulpur-Haldia project of 2,050 kms., GAIL has integrated
 the Ranchi-Dhamra pipeline project for a phased execution by Q4 of
 2019-2020. Board has also approved the Vijaipur-Auraiya-Phulpur
 pipeline for augmenting flow of gas to the expanded pipeline system
 upto Haldia. Pipeline projects undertaken during the last 24 months to
 upgrade regional networks in KG and Cauvery basins and Gujarat are
 under progress and the completion of Cauvery and KG Basin upgradation
 is expected during the current year. The thrust is on expanding last
 mile connectivity to improve outreach to newer consumer segments and
 enhance retail customer base, for it is emerging to be a driver of
 growth in the gas segment.
 During the year, the subsidiary company Brahmaputra Cracker & Polymer
 Limited''s petrochemicals unit was dedicated to the nation and the
 product acceptability is being currently established. Your Company''s
 another subsidiary - GAIL Gas Limited - is focused on City Gas
 Distribution (CGD) plays and has been progressing impressively in the
 newer territories and potential markets of Bengaluru and Haridwar
 geographical areas.  It has recently been awarded the North Goa
 geographical area for city gas business by the regulator.
 Your Company has also joined the SPVs for coal gasification and urea
 manufacturing projects under the revival plan of the Talcher based
 fertilizer unit of the Central Government. Pre-project activities of
 technology selection for coal gasification and obtaining coal block
 allocation in the vicinity are underway
 Your Company is engaged in realizing the TAPI Pipeline project to
 receive Natural Gas from the Galkynysh fields in Turkmenistan.
 Progressing in this endeavor, GAIL along with the other stakeholders of
 the project entered into a Shareholders Agreement (SHA) of TAPI
 Pipeline Consortium Limited SPV (TPCL) in December 2015, coinciding
 with the ground breaking ceremony to commence laying the Turkmen leg of
 the TAPI pipeline.  Galkynysh Pipeline Company the consortium leader
 group led by Turkmengas, will hold 85% equity while GAIL, ISGS
 (Pakistan) and Afghan Gas Enterprise (AGE) will each partake 5% equity
 I am glad to share that your Company has been acknowledged among CDP''s
 India Leaders 2015 and is featured for second successive year under the
 Climate Disclosure Leadership Index (CDLI), leading to GAIL being the
 highest ranking Company amongst the country''s Public Sector
 Undertakings under sustainability measures.
 On the technological front, your Company has aligned with the
 Government of India''s Digital India initiative to launch Digital
 GAIL to integrate all processes and stakeholders with digital services.
 You can now connect and be a part of the Digital India campaign through
 our recently-launched online platform, GAIL Social.
 Our social transformation projects have influenced more than eight
 hundred thousand lives in FY 2015-16. The preventive healthcare project
 extended to the various backward areas around the Company''s work-sites
 has provided preventive care and management to nearly half a million
 people. Through the flagship ''Utkarsh'' programme, we left an indelible
 touch on several economically deprived families by facilitating career
 opportunities to their exceptional wards in senior school. We are as
 proud as the families of 94 out of 100 students who have qualified in
 the prestigious IIT/NITs and other Institutions of Technology under the
 model project ''Utkarsh''.
 For the seventh year in a row, your Company received NIL comments
 from the Comptroller & Auditor General of India for FY 2015-16,
 reassuring best accounting practices adhered by your Company
 It has been an ethos and endeavour of GAIL to foster mutually-
 rewarding and enduring relationship with all its customers, vendors,
 partners, stakeholders, communities and regulators. In this endeavour,
 GAIL has been ranked the Top PSU by Economic Times survey culminating
 in 2015 on '' Best Companies for CSR- 2014'', with an overall ranking
 position at number 7 out of a study spanning 115 companies across more
 than twelve diverse sectors.
 We also acknowledge the role of the central and state governments for
 their immense support towards improving our ecosystem and facilitating
 GAIL''s pursuits in alignment with the National goals of rapidly
 expanding clean energy markets based on Natural Gas at the very core.
 In these times of the industry cruising amidst a challenging
 environment globally prudent financial and project management practices
 coupled with smart market penetration strategies and business models,
 uniquely positions your Company in continuing to deliver value to the
 shareholders'' investment. The Board is steadfast in its commitment to
 discharge this underlying objective.
 I thank you for your consistent faith in the value creation pursuits of
 your Company. 
                                                        (B.C. Tripathi)
                                          Chairman & Managing Director
Source :
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