Gail India Ltd has informed BSE that the Board of Directors of the Company in its meeting held recently has accorded approval for setting up a subsidiary Company for City Gas Distribution (CGD) and CNG corridor business.

Announcing the development on March 11, 2008, GAIL CMD, Dr. U D Choubey said that the next decade belongs to City Gas Distribution and it is being taken up as a major focus area by GAIL. The setting up of the subsidiary will also help in part for compliance of requirement of unbundling of the business for GAIL which may come in future, he added.

The initial equity in the subsidiary Company will be Rs 200 crore and corresponding to this equity amount, Debt shall be arranged amounting to Rs 300 crore (considering 1.5: 1 Debt: Equity ratio). The formalities for registering the Company and commencement of business have also been initiated.

The subsidiary Company will take up Distribution and Marketing of CNG as fuel for vehicles (inter city as well as intra city), Piped Natural Gas for domestic/ commercial/ industrial purposes and Auto LPG as fuel for transport vehicles in the various cities of India and abroad. The subsidiary Company will also take up investment in and setting up of infrastructure, in the various cities of India and along the national highways for building CNG corridors which includes, among others, natural gas compressor stations, laying of the pipelines from City Gate Station(s) to the consumption areas and associated facilities, setting up of distribution points / retail outlets for CNG/ Auto LPG and transport gas through mobile cascades/ lorries. The new subsidiary will also carry out allied retail business activities at CNG / Auto LPG retail outlets within the cities and along the highways. The subsidiary will also form alliances with Gas Producers/ Strategic Partners for implementation of the City Gas Projects as per the strategic decisions taken by GAIL.

The existing joint venture Companies would continue to operate as at present. However, GAIL will have the option to transfer its shares in the existing City Gas Distribution Joint Venture Companies as also the assets in Agra - Ferozabad Local Distribution Network to the subsidiary Company.

The new subsidiary will also take up the CNG Corridor Project which involves an estimated capital outlay of Rs 35 crore for setting up CNG stations along the highways. GAIL has identified 230 cities contiguous to existing and proposed pipelines for City Gas Distribution in phased manner. In first phase, seventeen cities have been identified to be taken up through its subsidiary Company with authorization from Petroleum and Natural Gas Regulatory Board (PNGRB). The subsidiary Company would take up directly with PNGRB towards the authorization and execution of CGD projects throughout India.

The subsidiary will have the distinct advantage of access to GAIL’s existing network of over 6700 km and proposed network of around 5500 km across the country. This will help in spreading the economic and environmental benefits of clean fuel like natural gas to distant parts of the country and help in achieving the objective of inclusive growth.

The new Company will have a Board of Directors consisting of not less than four and not more than twelve Directors. The Board shall initially comprise of five Directors including the Managing Director and shall be appointed by GAIL. CMD, GAIL will be the ex-officio Chairman of the subsidiary company.

The Subsidiary shall be working as holding office to implement city gas distribution projects through branch/ unit offices.

The setting up of a new subsidiary for city gas distribution and CNG corridor projects is a strong demonstration of GAIL’s commitment to City Gas Distribution projects and help in positioning GAIL’s dominance in the CGD implementation projects throughout country. The setting up of the subsidiary Company will help in appreciable enhancement in the experience and expertise for City Gas Project implementation resulting in better efficiency and satisfaction. The new company could act as the funnel for re-investing returns from operational CGD projects into new projects thus reducing the need for fresh equity infusions by GAIL. It is expected that the subsidiary company would be more easily listed in future thus providing further upside as well as liquidity to GAIL.