IOC, GAIL & HPCL may Raise ₹17kcr from Pipeline Stake Sale in FY22
May use funds in new projects or pass on to shareholders
The government expects Indian Oil, GAIL and Hindustan Petroleum to raise ₹17,000 crore by selling stakes in their pipelines in the next financial year, according to people familiar with the matter.
Indian Oil is expected to raise ₹8,000 crore while GAIL and HPCL are targeted to generate ₹4,500 crore each, as per the pipeline monetisation plan drawn up by the government. HPCL’s LPG pipeline in Karnataka and GAIL’s two gas pipelines crossing Gujarat, Maharashtra and Karnataka have been identified for monetisation but Indian Oil is yet to select its pipeline for the purpose, according to people aware of the matter.
Monetised via InvIT Route
HPCL’s 356-km Mangalore-Hassan-Mysuru-Solur pipeline and GAIL’s Dahej-Uran-Panvel-Dabhol and Dabhol-Bengaluru pipelines, with a combined length of 2,000 km, will be monetised through the infrastructure investment trust (InvIT) route, people with knowledge of the matter said.
Each company will transfer its identified pipeline into an InvIT formed for the purpose. The companies will sell minority stakes in the trust to institutional and retail investors, retaining majority ownership and operational control. Initially, 10-15% of shares in the InvIT will be sold.
InvITs, which typically hold income-generating, operational infrastructure assets such as toll roads and bridges, can be an attractive instrument for investors looking for regular income. InvITs can help free up resources, permitting companies to reallocate resources to new projects.
PAY FOR USE
Oil and gas companies will need to sign a new contract with the trust to be able to use the pipeline, pay for using it, offer minimum business guarantees and certain assured returns to make it attractive for investors, said the people cited above. The downstream regulator decides tariffs for gas pipelines but oil companies and the trust will have to decide the tariff between themselves for oil pipelines.
For oil and gas companies, an InvIT would be a trade-off between current and future cash flows as they would make quick gains by selling a share in the pipeline but would be obliged to pay for using it.
The funds raised by oil and gas companies could be deployed in their new projects or returned to the government and other shareholders via a dividend, as per the people cited above.
In her budget speech last month, finance minister Nirmala Sitharaman had announced plans to monetise the pipelines of Indian Oil, HPCL and GAIL. The government’s aim is to free up resources so that new projects can be easily funded, generating increased investment activity at a time the pandemic has slowed the economy.