Mukesh Ambani's gas transport business is a cash gusher too

Reliance Gas Transportation Infrastructure Ltd (RGTIL) came on its own a year back, when gas from the famous D6 block in the Krishna-Godavari basin flowed through its network of pipelines from Kakinada in Andhra Pradesh to different parts of the country.

So much so, in the financial year 2009-10, revenues jumped 16,158% to Rs2,588.23 crore from a measly Rs15.92 crore the year before. And losses decreased by almost 80% to Rs213.05 crore from Rs1,057.32 crore.

“Two things stand out,” in this, said a former official of AP Gas Power Corporation Ltd, who did not wish to be named.

“(First) is the record time in which RGTIL got approval to transport gas and the second is that even without knowing how much there is, the company got a clearance to transport 80 million units of gas per day.”

He was referring to the approval from the petroleum ministry in August 2004, which allowed RGTIL to transport 80 million units of gas per day from Kakinada in Andhra Pradesh to Bharuch in Gujarat.

Such serious bets get noticed, said experts, because they are huge cash-generating machines. Global majors, thus, get drawn to India’s untapped gas distribution and marketing business.

“Though India today is a relatively young market it still provides tremendous potential for upstream and downstream activities,” said Monish Chatrath, executive director Manzer India, a consulting firm that specialises in the oil industry.

“While select pockets have  been dominated by a few large players given the proven resources and attractive returns on investments, several international giants are looking to India,” Chatrath added.

On Monday, Reliance Industries and BP Plc announced they will create a 50-50 joint venture to market natural gas.

That day, BP said it will buy a 30% stake in 23 oil & gas blocks from RIL for $7.2 billion.

Overall, the two companies said, their alliance could involve investments of over $20 billion.    

As much as $11 billion out of this would flow into the pipeline joint venture.
To be sure, RIL and BP have deep pockets, but it has to contend with some formidable peers.

In the last mile space for distribution of piped gas, Mahanagar Gas (promoted by public sector oil companies and British Gas) and Indraprastha Gas have a significant headstart. Gujarat State Petronet and GAIL, on the other hand, have a substantial lead on the inter-state pipelines. Going forward, the topline of RGITL is expected to surge on increasing exploration activity and discoveries.
RGTIL has an equity capital of Rs700 crore having a face value of Re 1, whereas its issued preference capital is about Rs1,062 crore as on March 31, 2010.

The closely held company lists Reliance Utilities Pvt Ltd as its holding company and lists Reliance Industries Ltd (RIL), the group flagship, as an associate company.

RGTIL was set up a 100% subsidiary of RIL in 2003, a year after Reliance discovered gas in the D6 block in the Krishna Godavari basin.

“Their business perspectives for India are not only driven by their consideration towards diversification of risk but also driven by the degree of comfort provided by the financial commitments already demonstrated by their potential Indian partners,” Chatrath said.

RGTIL, according to the former AP Gas executive, must have spent close to Rs2 crore for every kilometre of pipe laid —  the cost thumb rule then. It has set up the 1,400 km of pipeline to transport gas from Kakinada to Bharuch in Gujarat at an investment of $1 billion.

According to a former senior official of GAIL, RGTIL is also working on three other projects —  the 1,100 km Kakinada-Haldia, 600 km Kakinada-Chennai and the 660 km Chennai-Bangalore-Mangalore pipeline networks.

Its much bigger peer, GAIL is also implementing a major expansion of the company’s natural gas pipeline network from 8,000 km at present to about 14,000 km by 2013-14.

RGTIL was moved out of the RIL fold in the year 2006 and became a privately held company of Mukesh Ambani, who then paid a meagre Rs5 lakh to the parent company, because of its annuity model.

“He (Mukesh) likes to own infrastructure annuity businesses,” said a long-time observer of the Reliance group.

He points to the Jamnagar port set up by Mukesh through an unlisted entity. Today the port meets about 25% of India’s crude oil imports and practically all of India’s oil exports.