State-run GAIL Ltd aims to step up spending on petrochemicals and the clean energy businesses even as it continues to invest in pipelines across the country, Manoj Jain, chairman and managing director, told Moneycontrol.
Jain said global gas prices may continue to remain high for the next one and a half years, but hopes that GAIL’s attempt to pool expensive gas with relatively cheaper domestic gas to sell to city gas distribution companies will provide a buffer to retail customers from volatility in the global energy market.
Jain, who is also head of HR, shared with Moneycontrol’s Rachita Prasad what the company is doing to attract and retain talent. Edited excerpts:
What are the key growth areas for expansion?
We are looking at setting up a petrochemical plant at Usar, near Alibag. It will be a 500,000 tonne per year polypropylene plant that will be ready by 2024. That is a big expansion on which we are working and we will be spending around Rs 7,000 to 8,000 crore in the next two years. We have also got a small expansion at existing petrochemical plants at Pata (Uttar Pradesh), where we are adding capacity of 60,000 tonnes.
On the pipeline side, we keep growing continuously. The Jagdishpur-Haldia pipeline, which is now the Pradhan Mantri Urja pipeline, is going to be completed this year by December, except for West Bengal, which will be completed by June 2023. Apart from this, the Mumbai-Nagpur-Jharsuguda project will be completed by May 2023. By December, we expect it to reach Nagpur. So Nagpur will get gas by December. Srikakulam Angul Pipeline and Dhamra Haldia pipeline will be ready in 2023. These are the major areas where we are working and we will be commissioning 1,400 km in FY23, while we commissioned 1,000 km in the previous year.
What is the capex plan going ahead?
In the next three years, the total capex is expected to be around Rs 30,000 crore, mainly on pipeline and petchem and other operational capex.
What about renewable and clean energy expansion plans?
This year, we successfully completed the acquisition of IL&FS’ 26 percent stake in ONGC Tripura Power Company. We are also setting up a 10 megawatt electrolyser for producing green hydrogen, for which an order has been placed and it will be the largest in the country.
We will be investing Rs 6,000 crore in the renewable segment in three years and by 2030, it will be Rs 20,000 crore more. We are aiming for around 10 percent of our portfolio to come from renewable and green hydrogen; this comes with the rider that we will finalise our green hydrogen plan after 18 months.
Given the volatility in global energy prices, what is your outlook on global gas prices?
At least for the next one to one-and-a-half years, prices may remain firm. This is because of two factors – one is because of the geopolitical situation. Europe is shifting away from Russian gas. So they need gas in any case as they can't suddenly switch over to any other form immediately. So, that's why they want more gas from other areas and there will be less availability and prices will remain firm. Over the next one and a half years, probably they will also work out alternative ways and slowly things may ease.
Secondly, the US has now embarked upon FIDs (final investment decision) over a longer period of time – this may ease the situation but it will take four to five years for the new plant to come up. As far as GAIL is concerned, we charge a small margin on what we buy and sell for long-term consumers so it is a passthrough. But if the prices are high, certain industries do not come on board the way they used to come earlier. So the aggression with which the expansions were taking place may slightly slow down.
In the city gas distribution area, the government has undertaken the 9th, 10th and 11th rounds, which have taken the expansion from close to nowhere to covering at least 98 percent of the population. This will see 12 to 15 percent growth, once the infrastructure is in place.
Rising prices of natural gas from different sources has resulted in an increase in domestic compressed natural gas (CNG) and piped natural gas (PNG) prices for retail users. What’s the outlook on prices and what is GAIL doing to reduce the impact of global price volatility?
To mitigate volatility, guidelines have been worked out by the government for which GAIL is operating pooled natural gas. That will definitely work out a uniform basic price for all the city gas distribution (CGD) companies. They were facing a problem in the last six months because certain geographical areas were getting cheaper gas, while certain smaller ones were not able to source the cheaper gas. Now, there will be a uniform price, which is a good thing, but definitely there is going to be some pain, at least in the immediate period.
In October, we expect the APM (administrative price mechanism) prices will further increase and so the overall price will also increase slightly. That would be the time when people can focus on expanding their infrastructure so that the lines can be used in 1-1.5 years.
There is a buzz that the government may look at ways to get stranded power generating units to get gas to increase output given the power crisis. Has the government indicated this to GAIL and how are you looking at this space?
What we understand is that up till October, demand for power is going to increase. We are working on how gas supply can be facilitated when there is a requirement for spot gas. The problem with the power sector is that they don’t need higher gas supply for the entire year, they need it for certain periods. That’s where GAIL comes into the picture, to provide that flexibility. This is a short-term measure. How much gas we supply would depend on month-on-month demand because we have the capability to arrange the gas in 20 to 30 days’ notice. We work out the anticipated demand with different power companies like NTPC and the Delhi government companies and then we factor it in our portfolio so that we have flexibility.
Is there a long-term plan for gas-based power projects?
The price of gas for gas-based power plants, other than that based on APM, was getting costlier. If we have cheaper power available in the country, who will buy the costly power? But from the renewable energy perspective, gas can play a big role in bridging peak demand. There are talks about how gas can provide the peaking power. GAIL can definitely play an important role in the long term but unless demand pans out for a long term, it will be difficult for anyone to predict.
You have said that GAIL is working on green hydrogen plans and will watch how it works out to make a bigger plan in 18 months. What’s happening on that front because the government is yet to come out with the second phase of green hydrogen policy?
We have already started so that it does not take much time for us to move once the policy comes. We are setting up a Rs 230 crore project with a 10 megawatt (MW) electrolyser in one of our locations at Guna in Madhya Pradesh. So we will be ready with green hydrogen in 18 months from now. Now, demand for that green hydrogen has to be ascertained. The National Fertilizers Ltd. plant is near our unit, so if the policy has mandatory obligations for fertilizer plants, we can supply natural gas mixed with green hydrogen or pure hydrogen.
Secondly, in that area there may be small players who demand hydrogen. They are currently buying hydrogen, which is not green, but if the costs are not very significantly different, they may like to go for green hydrogen. That’s why we thought we would prepare for 18 months and this period will also give us clarity on the policy.
The government has set an aggressive target of blending 20 percent ethanol in petrol. You have started blending gas. How will that roll out and how much can you blend?
Studies have shown that natural gas pipelines in the world have been able to blend up to 18 percent gas so far. So far, there is no regulation available anywhere in the world. That’s why we started with 2 percent blending in January. We have taken permission from PNGRB (Petroleum and Natural Gas Regulatory Board) and PESO (Petroleum and Explosives Safety Organisation); they have allowed us to blend on an experimental basis. Right now, we are mixing grey hydrogen, but once the green hydrogen arrives after 18 month, we can mix that.
Our primary results say that 2 percent has no impact on the materiality of pipelines. We wanted to assess what percentage we can go up to as thickness and permeability of the pipelines matter; we are studying that now. We have asked to be allowed to blend 2 percent and based on the results, we will be keen on increasing it by 1 percent or 2 percent more every time we seek permission.
There were some recent reports that you are looking to source some additional gas from Russia. How much are you buying and at what rates?
We need additional gas, as much as we can get. But we have not talked about Russia; we can buy from anywhere. We go through a tendering route and have the option of bilateral routes. We are working on that. We are getting gas from Russia as a part of the long-term agreement with Gazprom. There are some issues with respect to their Germany subsidiary; some small disruptions do take place. If someone offers more gas at good rates, we will look into that.
How are the asset monetisation plans coming along?
We shortlisted two pipelines earlier for asset monetisation. We have put up our proposal but the mode of asset monetisation is yet to be finalised by the government. We have done the preliminary work and as soon as we have the approval, we will take it forward. This year we have a target of Rs 4,000 crore for asset monetisation.
GAIL has shown interest in acquiring JBF Petrochemicals, which is undergoing insolvency proceedings. What is the status of that? Any other assets you are looking at for inorganic growth?
We have been shortlisted, we would definitely like to take it forward. This was an opportunity which seemed in sync with our petrochemical plans.
We are growing our renewables portfolio and we are looking for some joint venture opportunities – these are in the early stages.
The last two years have changed the way people look at jobs, with work from home as an option. For project companies, it’s anyway been a challenge to get and retain good talent at sites, some of which may be in far off locations. Has it become more difficult to get good talent? What’s your strategy?
Changes do take place and accordingly we have to also change. If we manage to make our workplace have all the elements of work from home, if people feel they can work, play and have extra activities on the campus, they are willing to go to sites. We also select people in different categories from different colleges. For field jobs, I will not hire from top notch engineering colleges like IIT, I may go to second-tier colleges. We try to match aspirations with what they are expected to deliver.
