Mumbai: Mukesh Ambani’s privately owned firm Reliance Gas Transportation Infrastructure Ltd (RGTIL) could soon be raising short-term debt of Rs1,000 crore as it will increase the capacity of the cross-country pipeline grid that will carry natural gas from the Krishna-Godavari (KG) river basin, off India’s east coast, to Gujarat.
The gas pipeline firm, which is now wholly owned by the promoters of Reliance Industries Ltd (RIL) and not by the listed entity, has been under a spotlight ever since Anil Ambani, the younger estranged sibling, went public with his allegations in a blistering speech to the shareholders of his Reliance Natural Resources Ltd (RNRL) about a month ago.
Anil Ambani had said that the transportation charges, quoted by RGTIL, were exorbitant and the transfer of ownership will lead to the promoters pocketing the entire revenues from piping the gas instead of it being shared by RIL shareholders—revenues that a sector analyst described as being “insulated from the outcome of messy gas dispute” in the Supreme Court.
Risk rating agency Crisil Ltd, in a release dated 11 August, assigned its highest P1+ rating to RGTIL’s short-term debt programme of raising Rs1,000 crore, as reflection of “RGTIL’s contractual commitments and strong operational linkages with RIL for evacuation of natural gas from the KG basin reserves” and “underpinned by stable project economics”.
“The ratings reaffirm the financial position of the company. We have not raised any funds recently,” said an RGTIL spokesperson in an emailed response late on Friday evening.
He did not respond to specific queries on when and from whom the money will be raised, at what expected rates of interest and the end uses it could be put to.
According to the rating agency, RGTIL had reported losses in 2008-09 “largely due to delay in commissioning and starting of commercial operations, and adverse foreign exchange rate movement”. The unlisted company doesn’t declare its financial results.
RIL has struck huge natural gas reserves in the D6 block in the KG basin and has begun producing gas from April this year, to be supplied to gas-starved fertilizer, power and city gas projects.
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This gas will be transported through RGTIL’s 1,386km-long East-West gas pipeline that will take the gas from Kakinada in Andhra Pradesh, the first landfall point for the offshore hydrocarbon find, to Bharuch in Gujarat, servicing companies across the country.
The government has fixed a price of $4.2 (Rs204.54) per million British thermal unit (mBtu) as well as drawn up the list of buyers, prompting the rating agency to comment in its release that “despite the substantial debt-funding of the project, the cash flows...will be stable and predictable”.
The entire project, according to Crisil, could cost about Rs18,500 crore.
“The transportation cost will be $0.5-1 per mBtu depending on the distance (through which gas has to be piped). It is a high capital expenditure, high margin business with very low operating costs,” said a Mumbai-based analyst with a domestic brokerage, who did not want to be identified.
The pipeline with a capacity to carry 80 million cu. m a day (mscmd) of gas—the only one with such a capacity—is critical to RIL’s business plans and could even be used, in case huge spare capacities are developed, to push gas finds from several other promising exploration blocks that RIL is exploring on the eastern coast.
Currently, infrastructure required to transport 60 mscmd is complete and the installation of the remaining capacity is under way.
The production from KG D6 is far below the capacity at 35 mscmd.
One of the other benefit for the owners of RGTIL, said the analyst quoted above, is the insulated nature of the revenues from this business that will not be affected by the outcome of the ongoing “messy court dispute” between RNRL and RIL, since the transportation costs accrue anyway.
RIL as well as its promoter Mukesh Ambani are looking to enter the gas pipeline business in a bigger way.
According to a 4 August report by PTI, RIL will acquire a majority 67% stake in the Krishna-Godavari Gas Network Ltd, set up by the Andhra Pradesh government, for setting up a statewide gas distribution project that is estimated to cost Rs1 trillion.
The Investment Corporation of Andhra Pradesh, Gujarat State Petroleum Corp. Ltd and IDFC Private Equity Fund will hold the remaining 11% stake equally.
The gas transportation business has also got a shot in the arm with a recent policy announcement.
The Union Budget this year, which marked a shift to “investment-linked tax incentives” as against profit-linked incentives, extended a tax holiday to “the business of laying and operating cross-country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle”. This makes all the capital spend made by RIL or RGTIL on pipeline laying fully deductible.
The rating agency, however, has pointed out possible spoilers—operational and regulatory—for an otherwise stable outlook on RGTIL.
“These ratings strengths are partially offset by RGTIL’s exposure to uncertainties on gas transportation tariff to be fixed by the Petroleum and Natural Gas Regulatory Board, the (downstream) regulator for the sector, and to residual project risks,” said the Crisil statement, mentioning significant delays in the ramp up of KG D6 production as one such example.
The regulator’s recent guidelines have recommended a tariff that envisages a 12% post-tax return on capital employed.