THE natural gas industry has entered a high investment phase to create infrastructure to handle increasing volumes. The domestic availability of natural gas has jumped by more than 50% in the past 10 months to 175 MMSCMD, thanks to RIL’s KG basin gas fields. This is forcing companies in the sector to create infrastructure to handle the increased volumes.
The lead has been taken by Gail, which plans to invest nearly Rs 50,000 crore in five years with nearly 70% of it going towards expanding the natural gas pipeline network. As a result, its cumulative investments in fixed assets (gross block), which was growing at a CAGR of 5.3% in the past five years, will grow at a CAGR of over 30% in the next five years.
Gujarat State Petronet has expanded its pipeline network aggressively within Gujarat over the past five years. It operates an over 1,500-km pipeline network with a gross block of Rs 2,800 crore and volumes expected to touch 40 million metric standard cubic meters per day (MMSCMD) by end March 2010. The company’s current expansion plans envisage investment of around Rs 1,500 crore in FY11.
Several companies are also investing in the city gas distribution (CGD) projects across the country. Mumbai’s Mahanagar Gas will double its gross block in the next three years from current Rs 705 crore as it expands beyond Mumbai and suburbs to adjoining Navi Mumbai and Thane districts.
While Delhi’s Indraprastha Gas, has planned a capex of Rs 1,600 crore in the next three years, effectively tripling its Rs 817 crore of gross block as it moves beyond National Capital Region (NCR) to nearby satellite towns. However, Gujarat Gas, the largest city gas distribution (CGD) company in terms of gas volumes, has been unable to draft its investment plans due to lack of regulatory approvals.
The company, which supplies gas to Surat, Bharuch and Ankleshwar, with a gross block of Rs 767 crore, as on December 2008, invested Rs 155 crore during 2009. It plans to maintain the annual capex at around Rs 150-200 crore till it receives the regulatory approvals.
These investments will completely change the face of this industry in the years to come. While their asset base expands, these companies will no longer remain debt-free, cash-rich as in the past.
The companies’ borrowings will shoot up as they start investing more cash than what they generate through operations. Gail alone is expected to borrow over Rs 28,700 crore, or 58% of its capex programme, over the next five years.
Though the pipelines business is highly capital-intensive, it enjoys low operating costs and high operating margins, resulting in strong operating cash flows. Considering the huge unmet demand for natural gas in India, capacity utilisation will not be a problem.
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