case study on guil

8/11/2019 case study on guil

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Acknowledgement

It gives me great pleasure on bringing out the project report entitled, Marketingstrategy of GAIL (India) Ltd. for its products and identifying areas of

improvement.

I wish to express my sincere thanks to Mr. Partha Jana, GM,GAIL for hisvaluable suggestions and unflinching support. He picked interest in me to handle the

project and encouraged my work every time. It would have been difficult for me tocomplete the project without his expert and experienced views.

I also wish to express my sincere gratitude to Mr. P. !amkrishna,"r.Manager(Mktg.) and the whole Marketing epartment for their thoroughsupport and cooperation throughout my training period. !heir invaluable knowledgeand advice guided me towards the completion of theproject.

"inally, I would like to thank all my friends and associates whose suggestionsand criticism made a scope for the betterment of this report.

#itendra $umar%&'()

!egistration #o. $%&$&&'

*+'


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"ynopsis

&)I -India imited is /avaratna %*0 under the administrative control of 1inistry of

%etroleum and /atural &as. It is primarily engaged in to /atural &as marketing andtransmission activities. !he company operates and maintains about 2,333 kilometers of &as!ransmission pipelines in the western, southern, and eastern regions of India. &)I -Indiaimited also offers various petrochemical products and services, which primarily includefilms, injection molding, master batch, rote molding, and extrusion coating4 and producesli5uefied petroleum gas and allied products, such as propane and pentane. In addition, itoffers telecommunications products and services4 supplies naphtha tankers4 and engages inretail gas business that includes %iped /atural &as distribution, as well as +ompressed

/atural &as -+/& distribution to transport sector.

Approach and Methodoogy

6 !he analysis is based on the study of the existing marketing practice at

&)I.

6 +ollection of primary data7information regarding the marketing strategy in the formof interviews.

6 +ollection of secondary data from reliable internet sites for competitor survey andlatest trends in gas marketing.

6 8eaching out to &)I9s branch offices like &%!+, &!I to collect data about&)I9s current trends.

6 !he current market trend was compared to the historical data and then therecommendations were given.

6 *tudying relevant official &)I documents to understand theorgani:ational functioning.


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Anaysis of GAIL

&)I has ambitions to be a highly efficient integrated gas company, with interests

from field development and production, through national transmission and imports, todistribution and allied industries such as petrochemicals. !hese ambitions are notlimited to India, as &)I is building a portfolio of international upstream anddownstream gas assets. It dominates domestic infrastructure and gas purchasing fromdomestic suppliers. ;ith huge potential for growth in Indian gas demand, &)Ishould be able to deliver sustained longterm revenues and earnings appreciation.

* +* -I /* "-MMA!0

&)I -India imited, a /avartna +ompany is a central %*0 under the administrativecontrol of 1inistry of %etroleum and /atural &as, which was incorporated in for

transportation of /atural &as as core business. )s on date, &)I is operating 2333 $ms of&as %ipelines across India and has a market share of 2?@ in India. &)I expanded its

business to %&, %etrochemicals, !elecom, +ity &as 'istribution, %ower andAxploration of BilC &as. !urnover to the company for the year D3


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A1L* 23 2#*#"

hapter ite Page #o.

& Introduction E

$ 8eview of iterature 2

4 *tudy on &)I

E.


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,hapter:&

Introduction

ompany "napshot

&)I -India imited operates as a gas transmission and marketing company inIndia. It primarily engages in natural gas marketing and transmission activities. !hecompany operates and maintains approximately2333 kilometers of regional pipelines in the western, southern, and eastern regions of

India. &)I -India also offers various petrochemical products and services, whichprimarily include films, injection molding, master batch, rote molding, and extrusioncoating4 and produces li5uefied petroleum gas and allied products, such as propaneand pentane. In addition, it offers telecommunications products and services4supplies naphtha tankers4 and engages in retail gas business that includes pipednatural gas distribution, as well as compressed natural gas fuel for transportation

purposes.

"urther, the company, through its joint venture, &ujarat *tate Anergy &eneration, td.,produces power utili:ing natural gas. )dditionally, &)I -India engages inexploration and production activities. It holds participation interests in


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orporate Mission

!o accelerate and optimi:e the effective and economic use of /atural &as and itsinfrastructure to the benefit of national economy.

orporate 2; years, some are underimplementation.

6 !runk %ipelines with the capacity to carry


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customers, &)I9s image is at stake.


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!herefore &)I needs to address the changing scenario in more proactive mannerand at same, address long pending customer grievances. !his is how &)I can endurecompetition.

Approach and Methodoogy

6 !he analysis is based on the study of the existing marketing practice at&)I.

6 +ollection of primary data7information regarding the marketing strategyin the form of interviews.

6 +ollection of secondary data from reliable internet sites for competitor surveyand latest trends in gas marketing.

6 8eaching out to &)I9s branch offices like &%!+, &!I to collect data about&)I9s current trends.

6 !he current market trends was compared to the historical data and then therecommendations were given.

6 *tudying relevant official &)I documents to understand theorgani:ational functioning.


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,hapter:$

8eview of ,iterature

"r o m t h e 1 e m o r a n d u m o f 0 nd e r s t a n di n g b e t w ee n 1 o % C / & an d

&)I-India td 32 3 =, i twas fou nd outthatJ

!he maximum realistic /atural &as 1arketing projections have been derivedbased on domestic gas 7 8/& availability trends during the year

D3323= C D33=


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!oday &)I owns and operates over 2333 km of pipeline and has about 2?@market share in the natural gas business in India. )lso, more than half of the total0rea production in India is gasbased, out of which &)I contributes more than=3@, thus making a significant contribution to IndiaKs agriculture sector.

&)I is one of the largest %& producers in India, with a li5uid hydrocarbonproduction -including %& exceeding < million tones per annum, and it operates thecountryKs largest &asbased %& extraction plant. &)I has now introduced theconcept of %& pipelines in India, and iscurrently operating the worldKs longest .? 1; capacity in $utch 'istrict of&ujarat for captive consumption at +ompany9s installations at &andhar, *amakhialiand $andla in &ujarat. &)I is planning to set up over


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2perationa *8ceence

Bperations and 1aintenance of plant and e5uipment plays a pivotal role in thegrowth and development of an industry. In the &as Industry where millions of cubicmeters of gas per day are transported through crosscountry pipelines, Bperations and1aintenance -BC1 assume significant importance. BC1 of pipelines and plantshelps ensure a highly reliable and operationally safe system, providing not only uninterrupted supply of gas to consumers, but also maximi:ing the throughput.

&)IKs emphasis is not only on maximi:ing production and sale of natural gas butalso to achieve this with least consumption of energy. Avery effort is centered onenergyefficient operation of the plants, machinery and processes.

!he BC1 arm of &)I is constantly making efforts to improve upon its performancein this area. )vailability of the bestdedicated telecommunication7*+)') facilities in

the country has been fully utili:ed for online monitoring of machine7processparameters along the pipeline. Bbserve, 'etect, )naly:e, +ompare and Improve are thewatchwords for operations on daytoday basis.

8eviewin g the In f ra l inejo u r na l J/atu ra lgas in I ndi a D 3 3 G , i twas f o u n d

tha t&)Iis ab o utto l ay fivenew /a tu ra l&as pipe l ines , they are J


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,hapter:4

"tudy on GAIL

4.&. ompany Anaysis

&)I has ambitions to be a highly efficient integrated gas company, with interests fromfield development and production, through national transmission and imports, todistribution and allied industries such as petrochemicals. !hese ambitions are notlimited to India, as &)I is building a portfolio of international upstream anddownstream gas assets. It dominates domestic infrastructure and gas purchasing fromdomestic suppliers. ;ith huge potential for growth in Indian gas demand, &)Ishould be able to deliver sustained longterm revenues and earnings appreciation.

">2 Anaysis

6 "trengthsJ


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6 hreatsJ


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(oth sides stand to benefit from the proposed project, with India having facilitatedaccess to gas imports and *hell gaining access to &)IKs domestic gas clients,especially those in the northern markets.

4.$. India #atura Gas "ector 9 eveopment and 2utook

6 'eregulation of domestic gas prices has been gradually gatheringmomentum with the &oI, after a delay of nearly five years, effecting anincrease in prices in #uly D33? for core sector consumers and deregulating

prices for other consumers. 8/& has also been successfully marketed bythe offtakers, and private7# producers havebeen able to revise prices upwards.(ecause of these developments, nearly ?3@ of the market today is buying gas atmarket determined ratesNa significant change when compared with the scenarioin the recent past.

6 !he price of 8/& supplied by %, the main supplier in the Indian marketsat present, is also expected to undergo a significant change beginning #anuaryD33=, when the currently existing cap is lifted and prices get gradually alignedwith the #++ prices. !he incremental /& to be sourced in the Indian market isalso expected to be available at higher prices than contracted hitherto, given thetight demandsupply levels for /& current and envisaged in the global market.

6 8egulatory policies governing the gas sector are with the appointment of theregulator under the %/&8(.

4.4. Go;a Gas Market 2vervie=

6 !he world had


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6 !he worldwide trend observed over recent years of a shift from oil to gasfired power stations, the growing use of gas in enhanced oil recovery -AB8

processes and unconventional oil production, and global efforts to reduce gasflaring will underpin rising demand.

4.5. *nergy Market 2vervie=9 India

6 India is the worldKs fifthbiggest energy consumer and continues to grow rapidly.It is the thirdbiggest global coal producer, but has limited supplies of oil andnatural gas.

6 Bil accounts for about E?@ of IndiaKs total energy consumption, with its shareof the mix having risen from E3@ earlier this decade. IndiaKs ?.=bn bbl of provenoil reserves -(% *tatistical 8eview of ;orld Anergy, #uneD33G represent just 3.?@ of the worldKs total, with 1umbai High being the

biggest producing field. !he 'ecember Bil C &as #ournal survey reportsreserves lower at ?.Dbn bbl. IndiaKs average oil production level -total li5uidsfor D33 was 23G,333b7d.

6 In terms of natural gas, India accounts for 3.>@ of global reserves and just over


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Petronet L#G:"ummary

%etronet /& was set up by the government of India to import /& and set updomestic /& terminals. !he companyKs major shareholders include &)I, B/&+,IB+, (%+ and Ga@ de "rance. !he # signed a D?year *%) with!as Laffan L#GLtd -8asgas in . %etronetKsfirst /& terminal, a ?mn tpa facility located in 'ahej, &uj arat, started up operations in#anuary D33?. !he # is also planning to construct a second D.?mn tpa terminal in$ochi, $erala, but the project has been delayed until the end of D3 ea k nes ses

6 imited financial or operational freedom4

6 +ost and efficiency disadvantages4

6 'eclining output from mature assets.


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2 p p ort unities

6 Huge cost cutting potential4

6 Higher recovery rates from existing fields4

6 0ntapped domestic oil and gas potential4

6 *trong domestic energy demand growth.

hr eat s

6 8ising investment re5uirement4

6 ongterm decline in oil production4

6 +hanges in national energy policy.

Market Position

B/&+ is the Indian governmentKs main upstream vehicle in what is a largely statecontrolled oil and gas sector. !he government owns G>.@ of the company, whichaccounts for approximately < @ of IndiaKs crude oil output and

G< @ of natural gas production. It is also diversifying into refining and oil distribution,while attempting to build an international upstream asset base. B/&+ now owns2=@of 1angalore 8efinery and %etrochemicals td -18%, which operates an,333b7d refinery in southwestern $arnataka *tate. !he company has receivedauthorisation to open a network of 33 service stations, while 18% was grantedapproval in "ebruary D33> to set up ?33 retail outlets. It is E3@ partner to +airn India inthe important new 8ajasthan oil discoveries and has made substantial gas discoveries inrecent months, located mainly offshore in the $& basin.

industan Petroeum orporation Ltd (PL)

" tren gt h s

6 *trong refining and distribution position4

6 *ubstantial retail expansion planned.

>eaknesses

6 imited financial or operational freedom4

6 +ost and efficiency disadvantages4


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6 ack of full integration benefits.

2pportunities

6 *ubstantial cost cutting potential4

6 8efinery upgrading7expansion4

6 Axtension of retail network4


hr eat s


6 "uels competition from IB+s and Indian groups4


Market Position

H%+ is the second largest integrated refining and marketing group in India,accounting for around DD@of the countryKs refining capacity. !he 1umbai refineryhas an

installed capacity of ?.?mn tpa, while the isakhapatnam facility has a

G.?mn tpa -


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6 ack of integration benefits.

2 p p ort unities

6 *ubstantial cost cutting potential4

6 8efinery upgrading7expansion4

6 Axtension of retail network4


hr ea t s


6 "uels competition from IB+s and Indian groups


Market Position

*taterun IB+ is the countryKs largest commercial enterprise. It holds a E3@ share of therefinery sector, the countryKs largest retail and oil pipeline networks and a?@share of

the fuels segment. !he company owns and operates


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4.6. Gas "uppy And emand

In terms of natural gas, the region in D33G consumed an estimated >>


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specifications including specifying the buyer and seller, the price, the amount ofnatural gas to be sold -usually expressed in a volume per day, the receipt and delivery

point, the tenure of the contract -usually expressed in number of days, beginning ona specified day, and other terms and conditions. !he special terms and conditionsusually outline such things as the payment dates, 5uality specifications for the naturalgas to be sold, and any other specifications agreed to by both parties.

At GAIL, there are three different types of contracts for the Gas to be marketed:


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&as at the 'elivery %oint due to any unforeseen circumstance or an event of"orce 1ajeure, then the *ellers shall not only be discharged of its obligation todeliver /ominated 'aily Luantity on such 'ay-s

Buartery ake or Pay Buantity

6 "or each Luarter there shall be a Luarterly !ake or %ay Luantity.

6 !he aggregate of 'eliverable olume for each 'ay in the Luarter4 less Luarterly*hortfall Luantity for that Luarter4 less !he 5uantities of *ales &as which the*ellers were prevented from supplying or the (uyer was prevented from receiving*ales &as due to "orce 1ajeure during that Luarter4 less !he 5uantities of *ales&as which the *ellers wereprevented from supplying or the (uyer was preventedfrom receiving *ales &as due to %lanned 1aintenance during that Luarter4 less !he5uantities of *ales &as which the (uyer rejects as being Bff *pecification &as.

Buartery ake or Pay 2;igation

If in any Luarter the ac t u a l 5uantity of *ales &as including 1ake 0p&as less)dditional &as taken by the (uyer -the Actua BuarteryBuantity or ABBis less than the Luarterly !ake or %ay Luantity -such deficit being the eficitBuantity, the (uyer shall pay to the *ellers an amount e5ual toJ -Luarterly !ake or%ay Luantity Q *ales &as %rice minus -)LL Q *ales &as %rice"or the purposes ofcalculation of Luarterly !ake or %ay obligation, the applicable *ales &as %rice shall bethe !apti &as %rice.

P!I* A# 1ILLI#G

!he (uyer shall pay each of the *ellers for each 11(!0 of &as on /H basisdelivered and taken hereunder from the 1id C *outh !apti "ields, aprice calculated ona Luarterly basis of the 1id C *outh !apti %*+ -the !apti &as %rice, which isincorporated by reference in this +ontract, at a price not exceeding 0*M?.?G711(!0 being the ceiling price under the terms of the 1id and *outh!apti %*+ and price not exceeding 0*

M?.GE711(!0 under the terms of the %anna1ukta %*+.

!he *ales &as %rice is calculated excluding taxes and levies. !he (uyer shallreimburse each of the *ellers any tax -inclusive of sales tax and7or )! payable

by each of the *ellers to the &overnment, a *tate &overnment or local authority, onaccount of the sale and 7or transfer of title of *ales &as to the (uyer at the 'elivery%oint. "or the avoidance of doubt, royalty payments under the %*+s shall be

borne by the *ellers. )ll costs downstream of the 'elivery %oint shall be borne bythe (uyer.


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32!* MAJ*-!*

8 e li e f J If by reason of "orce 1ajeure, the *ellers or the (uyer are7is renderedunable wholly or in part to carry out their or its obligations under this +ontract, thenthe liability for failure to meet the obligations of the %arty concerned, as long as and tothe extent that the obligations are affected by such "orce 1ajeure, shall be excused.

If such event or series of events of "orce 1ajeure is not remedied or mitigatedpursuant to discussions between the *ellers and (uyer within E3'ays of the meeting between the *ellers and the (uyer, then the +ontract may beterminated at the discretion of the %arty not claiming "orce 1ajeure, following a E3days notice prior to termination, which notice may only be given after E3 'ays of theaforesaid meeting.

' uty to 1i tiga t e Affec ts o f " o rc e 1 aj e u r e J ) %arty claiming "orce 1ajeure shallexercise reasonable diligence to seek to overcome the "orce 1ajeure event and tomitigate its effect on the performance of its obligations under this +ontract andresume performance of obligations as soon as practicable once the effect of the eventof "orce 1ajeure ceases to exist. !he %arty affected shall promptly notify the other%arties as soon as the "orce 1ajeure event has been removed and no longer prevents itfrom complying with the obligations, which have been suspended and shall thereafterresume compliance with such obligations as soon as possible.

"-"P*#"I2# A# *!MI#AI2#

!he *ellers have not received from the (uyer due payment in accordance with theterms of this +ontract towards the *ales &as and7or the Luarterly !ake or %ayLuantity in full -and not merely in part within the periods specified. I" )/R B" !HA%)8!IA*+ommits any breach of a material term of this +ontract, and, if that breach iscapable of remedy, fails to remedy that breach within thirty -E3 'ays of notificationfrom the *ellers of that breach. "ails to pay to the *ellers a sum due and payableunder this +ontract, within E3 'ays from the date it was due for payment. (ecomesinsolvent or bankrupt or makes a composition or arrangements with its creditors.1erges with another entity where the surviving entity has not assumed in full the(uyer9s rights and obligations under the +ontract.

APM ontract: 3eatures

6 In this type of contract, the prices of gas transmission are regulated by thegovernment of India.

6 *hipper pays the transmission charges every fortnight.

6 *hipper also pays the charges towards spur line.

6 !he authori:ed and the unauthori:ed overrun charges are also payable for a


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fortnight.

6 )s for billing and payment, the transporter shall deliver electronically, aninvoice as soon as possible to the shipper.

6 "orce 1ajeure remains the same as the %1! +ontract.

6 !hese contracts last for more than


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gas was revised to 8s.l,??371*+1, w.e.f.


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D.E.D It was decided that the price of gas supplied to small consumers andtransport sector -+/& would be increased over the next E to ? years to thelevel of the market price. ;ith effect from 3.3.D33, the )%1 gas price tosmall consumers and +/& sector has been increased to 8s.>32 7 1*+1.

D.E.E It was decided that the gas price to the consumers other than thosestated in para D.E..=D711(!0.

>. Pricing of Gas under Pre:#*LP Production "haring ontracts : PMand !avva J/ Gas

>.< %roduction *haring +ontracts were executed by &BI with 8avva consortiumand %1! consortium on Bctober D2, and 'ecember


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-


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>.E In case of 8avva, the revision of ceiling price is due after ? y ears from thedate of supply and the revised ceiling price is to be negotiated between the(uyer and the *eller in good faith. !he price revision for 8avva was due w.e.f.)pril D33D. !he price revision has been effected w.e.f. #uly


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Prevaiing gas prices under various P"s (Juy $%%)

!he prevailing prices as per signed contracts under various %*+s areJ

#ame of

1uyer Appro8imate Euantity Price 1asis

Panna:Mukta ? apti

&)I?.G 11*+1' from.D33? M E.2711(!0 "ixed %r ice

? 11*+1' from M >.G?711(!0.D33 for D years

&*%+,&&+,I%+, 8II

>. 11*+1' from.D33? to 1arch D33 M >.32711(!0 "ixed %r ice

&*%+,&&+,I%+, 8I


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&)I


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!he only long term contract in the country was the G year contract

with %anna 1ukta !apti fields as detailed belowJ

Gas price

(-"F

mm;tu)

erms of sae

#ature

of Gas

price

Buantity

(MM"M)

ontract term

(uyer J &)I-for various power,fertili:er andindustrial users

D.


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!he balance is transferred to the +entral Axche5uer. &as %ool )ccount has now beendismantled.

2ptions for gas pricing poicy

!he %roduction *haring +ontracts -%*+s provide for pricing of gas on thebasis of saleon armslength basis. !he role of the &overnment is to approve the valuation of gasfor the purpose of determining &overnment take. In order to provide transparency inapproving valuations, the &overnment formed a +ommittee in )ugust D33 toformulate guidelines for approving natural gas price formula 7 basis for giving&overnment approval under the %roduction *haring +ontracts.

!he +ommittee was headed by #oint *ecretary C "inancial )dvisor, 1inistry of%etroleum C /atural &as and had 'irector &eneral, 'irectorate &eneral Hydrocarbonsand concerned #oint *ecretaries as other members. !he +ommittee held extensive

consultations with various stakeholders, including the producers as well as theconsumers, besides other expert organi:ations, before finali:ing its report. !he+ommittee has recommended that in all situations where a price discovery throughcompetitive bidding is possible, there should be no need to apply any other principlefor valuation of gas. Bnce a marketdetermined price has been discovered between thesuppliers and customers through a transparent competitive bidding process, there should

be no need for the &overnment to interfere with the same.

"urther, it has said that in the absence of a market determined price discoveredthrough a transparent bidding process, where valuation of gas has to be necessarily done

by &overnment, it may be done based on the price in the most recent competitively

determined contract in the region duly indexed to the present. Indexation is to be doneas per provisions of the market determined reference contract, as each marketdetermined contract sets out various terms and conditions of supply, includingthe price review mechanism.

!he +ommittee has noted that each contract, normally, has a price review clause everyfive years. If the price stands reviewed as per the reference contract, that may becomethe new reference price. "or interim periods, the +ommittee has recommended thatindexation may be linked to percentage increase in price of cheapest li5uid fuel, i.e.,"urnace Bil -"B, which is not only the cheapest li5uid fuel but has also shownleast price volatility in recent years. It was of the view that the above valuation may be

applied only when actual supply has commenced and the price has not been d iscoveredthrough the market mechanism. However, if the actual price, at which any producersupplies to any consumer, is higher than the one arrived at by the above methodology,then the higher price is to be reckoned for &overnment take. It would be ideal if the+ommitteeKs approach had never to be applied, but if the eventuality does arise, '&'&H and 'irector, %%)+ will do the calculations based on +ommitteeKsrecommendations. It would be '&HKs responsibility to ensure that the %roducer remitsthe &overnmentKs take accordingly.

!he &overnment has since issued orders for constitution of an Ampowered &roup of1inisters to consider issues pertaining to pricing of natural gas produced in the country.


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!he A&o1 has held two meetings, which were inconclusive. ) subcommittee ofsenior brass from the 1inistries of "inance, aw, %ower, %etroleum, %lanning+ommission and A)+ is currently looking into the pricing formula proposed by8I for pricing its gas for ' block in $& basin. !he recommendation of this subcommittee are likely to be submitted shortly to the A&o1, expected to meet on*eptember


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any, on linkage of gas prices with li5uid fuels. 1inistry of %etroleum C/atural &as have drawn up a set of guidelines for approving gas price7 formulafor the purpose of determining &overnment take under /A% contracts. !hese

provide for valuation based on the most recentcompetitively determinedprice in the region duly indexed to thepresent.

6 $&';/=27E %*+ provides for the &overnment to take its share of profitpetroleum in cash or kind by exercising such an option on an annual basis. *ofar the &overnment has not exercised its option to take any gas in kindseparately and entire profit petroleum has flowed to the &overnment in cashin all %*+s. In case the &overnment decides to take its share in kind, thefollowing issues would need to be settled firstJ

i. !he &overnment would have to designate a &overnment nominee,

ii. !he price of such gas would have to be at par with the price of gas fixedby the contractor in order to avoid financial losses accruing in theconsolidated fund of India,

iii. In view of the uncertainty in estimation of profit gas, the &overnmentnominee may have to keep its infrastructure idle in the years when profitgas level fluctuates to a lower level.

6 1inistry of %ower stated that the construction of pipeline is linked to theproduction centre unlike the transmission part in the power sector which isinsulated from the power production entities. )s opposed to tariff based biddingin the power sector, the producer linkage for the construction of pipeline makesthe system monopolistic. In reply, 1inistry of %etroleum and /atural &as statedthat the risk taking is discouraged by providing advance tieup with producer

agencies before granting /B+ for the construction of pipeline. However, thetariff for transportation would be regulated.

6 'epartment of "ertili:er stated that the &ovt. had directed that fertili:ersector should get priority in natural gas allocation. !he &ovt. had also approvedthe conversion of nongas based fertili:er plants to gas based. It added thatIndia could emerge as the potential hub for urea manufacture, which wouldre5uire additional =? 11*+1' of gas by the year D3


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6 It was observed that 1inistry of %etroleum and /atural &as should firm updemand and supply projections and draw up action plans with timelines forensuring that the projected supplies become available. !hese may be included inthe revised agenda note for A++ along with issues, if any, re5uiring decisions. Itwas also observed that the following issues would re5uire further discussionswith stakeholders before firming up the recommendations on pricingformula7basis for the gas from $&';/=27E J

i. the %*+ stipulation relating to +)%AT, the system of approval of thedevelopmental plan, production profile, technical plan, the system of audit bythe &overnment and the need to make the system more transparent4

ii. the details and methodology for the administration of the provisions of %*+providing sale of natural gas produced from the contract area at competitivearms length prices4

iii. the gas utili:ation and pricing policy4

iv. the gas price formula and steps of the bid process submitted by 17s 8elianceIndia td to the 1inistry for their approval including the rule for marketclearing4

v. ;hether to exercise the option for taking profit gas in kind or cash U

!he +onsumer %rice of /atural &as, 8/& and H# 7 '% 7 '0% !ransmission!ariff and 1arketing 1argin, adopted for computing the financial targets are given inthe following tableJ

(!s.F222 ",M)

Item Price

'omestic &as )%1 ED33

'omestic &as )%1 -V?3333 *+1' etc. >32

'omestic &as 1arket 'riven G?=

'omestic &as /A 8egion )%1

!ransmission !ariff -'0%


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4.&%. Gas emand "uppy ProD.2= ??.=3 G.D G.D

+ity &as


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&5%

&$%

&%%

7%

6%

5%

$%

% $%%(:

%7

$%%7:

%C

$%%C:

&%

$%&%:

&&

$%&&:

&$

Po=er

3erti)e@e

r

,ityGas

Industri

a)

Petrochemica)sF!

efi neries"ponge ironF"tee)


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2vera Gas "uppy pro


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$'% 2#G H 2IL (A)

$%%

&'%

&%%

'%

%

$%%(:%7

$%%7:%C

$%%C:&%

$%&%:&&

$%&&:&$

Pvt.FJ/s (As per

G)(1)

Pro


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-%otentially it can add up 2E.


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C%7%

(%

6%

'%

5%

4%

$%

&%

%

$%%(:

%7$%%7:

%C

$%%C:

&%

$%&%:

&&

$%&&:

&$

aheDX !B X

0ttar %radesh -0% 2D EX !B X

'elhi = X

ota #atura Gas Pipeines 7%%%

!ecent Pro


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4.&$. Petrochemica Marketing

&)I made an entry into the petrochemicals market on )pril 3,333 !%) -Athylene is under way.

6 )n additional H'%A plant with


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Products

&)I offers a wide range of grades to cater to diverse applications.

6 *trategically located stockiest centers.

6 1ultiple delivery modes, supply from production sites as well as stockpoints.

6 Afficient supply chain management ensure customer needs are met on time,with products that are of consistent 5uality.

!he combination of &)I9s wide range of %olyethylene grades based oninternationally proven technologies, professional services from the %etrochemical1arketing &roup -%1&, Yonal Bffices and &)I %olymer !echnology +entre

-&%!+ and commitment to customer value provides &)I the ideal base to nurture along term business relationship with the customers.

6 G:e8 high density polyethylene manufactured by &)I is based on thesurry poymeri@ation process of 1itsui, #apan.

6 It provides a variety of grades. Its high molecular weight grades are suitablefor a wide range of applications, including H1 films, %ipes and (lowmoldings.

"roduct Length of G#le!:

1o= ModingJ &lex blow molding grades have excellent processability, impactstrength, stiffness and A*+8. !he application includes small to medium si:econtainers like ube oil, shampoo, cosmetic, pesticide, anaspati and Adible oilcontainers.

PipeJ &lex high molecular weight pipe grade is bimodal and has excellentprocessability, chemical resistance and mechanical properties. 1ajor usages are inthe potable water system, sprinkler and sewerage. It conforms to hydrostatic

pressure re5uirement as per %A 23 classification of I* >=2> . & lexA?D)33E7A?D033E-with 0 stabiliserare suitable for Bptical "iber +able ductapplications .

3imJ &lex H1 film grade is bimodal in nature with excellentprocessability, andan optimum balance of toughness and impact strength. It has an excellentdrawdownability for making thin gauge film. 1ajor usages are carry bags,industrial liners, grocery bags, shopping bags, and multilayer packaging film for edibleoil packaging etc.


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MonofiamentJ &lex monofilament grade has an excellent extrudability and goodbalance between linear strength and knot strength. 1ajor usage is in ropes and twines.

"roduct Length of G#lene:

!affia J &lene raffia grade has an excellent process ability and superior mechanicalproperties, making it excellent choice for processors demanding high strength tapes . !hegrade is well accepted in the market in manufacturing of woven sacks for fertili:er, sugar,food grains, chemicals packaging etc.

Inire and ca;e J &lene wire and cable grades are designed for poly #elly filled cables asper 'B! specification. !he grades have an excellentprocessability, thermal resistance andelectrical properties.

G:ene range of H'%A and '%A grades are based on the K"cairtechK soution processtechnology of /B) +hemicals, +anada. +ustomers can achieve better profitability,through process and material efficiencies, by using these grades.

P* !affia grade has excellent process ability and superior mechanical properties,making it ideal for high strength tapes.

1o= moding grades have excellent stiffness and impact properties, making them perfectfor a number of applications in the lube oil, edible oil, cosmetics C detergentsectors.

LLP* grades are designed with various additive packages to suit the stringentpackaging norms of various end use sectors. !hey are used for heavy duty C li5uidpackaging applications where good physical properties are desired.

In


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versions. !hese are widely used in soft drink crates, luggage shells, industrialmoulding, and household articles.

!otomouding grade is designed to balance stiffness and impact strength. !he grade hassuperior process ability, and finds applications in chemical tanks, water tanks, automotivecomponents C toys.

&)I has also introduced pipe coating P* grade for coating on steel pipes fortransportation of oil and natural gas. !he grade has excellent

processability, abrasion resistance, and adhesion characteristics.

Price

6 Import Parity Pricing is foo=ed at GAIL. !his is done due to severalreasons, the primary reason being its dominant position in the petrochemicalmarket.

he 3undamentas of Import Parity Pricing

Import %arity %rice of a product means the price that the same product wouldhave attracted had that been imported. !he major constituents of

the Import %arity %rice areJ

321 Price Landed ostFImport Parity

PriceF!efinery ransfer

PriceF!efinery Gate PriceF*8:

!efinery Price

W%remium

WBcean "reight

WInsurance

W+ustom 'uty

WBcean oss

W;harfage

Landed ost *8:"torage Point Price

W1arketing +ost


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W1arketing 1argins

W"reight A5uali:ation

W*tock oss

W;orking +apital

6 !here are two sources to the petrochemical pricesJ

&. Patts !eport (revised every >ednesday)

$. II" K London 2i !eport (revised every 3riday)

6 )long with these prices the other charges such as 2ctroi, saes ta8,e8cise, freight charges are added wherever applicable.

6 !he pricing also depends upon the petrochemica emand and"uppy scenario.

(elow is the product price report of both G:e8 and G:ene (sampe report).(oth basic price and freight charges are charged in accordance to the location. !his

price report is effective from the G.3()/&)B (?D)33E( (?D)33E( &AT 33. E,E>G.3

()/&)B (?D)33E(* (?D)33E(* &AT 3G.3

()/&)B (?D)33E/)

(?D)33E/) &AT H'%AD 3G.3(?D)33E/( &AT H'%AD

()/&)B (?D)33E/B&

(?D)33E/B&&

AT H'%AD 3G.3

()/&)B (?D)33EB&

(?D)33EB& &AT H'%A 3G.3

()/&)B (?D)33EB&* (?D)33EB&* &AT H'%A 33. E E>G.3

()/&)B (??H1333E)

(??H1333E) &AT H'%A 3G.3

()/&)B (??H1333E)

(??H1333E)* &AT H'%A 3G.3

()/&)B (??H1333E(

(??H1333E( &AT 3G.3

()/&)B (??H1333E(

(??H1333E(* &AT 3


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()/&)B (??H1333EB

(??H1333EB&* &AT H'%A 3G.3

()/&)B (E)33E( (E)33E( &AT 33. E,E>G.3()/&)B (E)33E(* (E)33E(* &AT 3G.3

()/&)B (E)33E/)

(E)33E/) &AT H'%AD 3G.3(E)33E/( &AT H'%AD

()/&)B (E)33E/B&

(E)33E/B& &AT H'%AD 3G.3

()/&)B (E)33EB& (E)33EB& &AT 3G.3H'%A

()/&)B (E)33EB&*

(E)33EB&* &

AT H'%A 33. E E>G.3

()/&)B +>E'33)

+>E'33) &A/A H'%A 3G.3

()/&)B +>E'33)*

+>E'33)* &A/A H'%A 3E'33( +>E'33( &A/A 3E'33(*

+>E'33(* &A/A H'%A 3E'33B&

+>E'33B& &A/A H'%A 3G.3

()/&)B +>E'33B&*

+>E'33B&* &A/A 3?)33E) A>?)33E) &A/A 3?)33E)*

A>?)33E)* &A/A H'%A 3?)33E( A>?)33E( &A/A 3


56/76


57/76

()/&)B "??H1333E(

"??H1333E(* &AT H'%A 3


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()/&)B I2)3G3/)

I2)3G3/) &AT H'%AD 3) &A/A 3)*

%>)* &A/A H'%A 3G.3

()/&)B %>( %>( &A/A 3G.3

()/&)B %>(*

%>(* &A/A H'%A 3B&

%>B& &A/A

H'%A 3B&*

%>B&* &A/A 33. E E>G.3

()/&)B %?D)33E) %?D)33E) &AT 3G.3()/&)B %?D)33E( %?D)33E( &AT 3G.3

()/&)B %?D)33E/)

%?D)33E/) &ATH'%AD 3G.3%?D)33E/( &ATH'%AD

()/&)B %?D)33E/B&

%?D)33E/B& &AT H'%AD 3G.3

()/&)B %?D)33EB&

%?D)33EB& &AT H'%A 3G.3

()/&)B %?>)33)33)33)33)33)33)33)33G.3

()/&)B %?>)33)33)33)33)33)33)*

%(>2)33>)* &A/A H'%A 3G.3%(>2)33>( &A/A H'%A

()/&)B %(>2)33>(* %(>2)33>(* & 3


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()/&)B %(>2)33>B&

%(>2)33>B&* &A/A H'%A 3G.3

()/&)B 8E?)3>D)

8E?)3>D) &A/A '%A 3D)*

8E?)3>D)* &

A/A '%A 3D( &A/A'%A

()/&)B 8E?)3>D(*

8E?)3>D(* &A/A'%A 3DB&

8E?)3>DB& &A/A '%A 3DB&*

8E?)3>DB&* &A/A '%A 3D)

8E?03>D) &A/A '%A 3D)*8E?03>D)* &A/A '%A 3D(

8E?03>D( &A/A '%A 3D(*

8E?03>D(* &A/A '%A 3DB& &A/A '%A

()/&)B 8E?03>DB&*

8E?03>DB&* &A/A '%A 3


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()/&)B ;?D)33=( ;?D)33=( &AT 3( ;??)33=( &AT 3G.3

()/&)B ;??)33>(*

;??)33=(* &AT H'%A 3G.3

()/&)B ;??)33>/)

;??)33>/) &AT H'%AD 3


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()/&)B ;??)33>/(

;??)33>/( &AT H'%AD 3G.3

()/&)B ;??)33>/B

;??)33=/B& &AT H'%AD 3B&

;??)33=B& &AT

H'%A 3B&*

;??)33=B&* &AT 3


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E. GAIL Poymer echnoogy enter

&)I -I/'I)!'.

(E?GE, *ector < /BI') D33


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can be transported safely. ;hile shipping or loading the petrochemicals intruck, the standard D? kilograms bag can be easily transported from thewarehouse to the customer9s site.

Promotion


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4.&4. ity Gas istri;ution

!his is another sector which has a high growth potential. ;orldwide, city gasdistribution has grown hand in hand with the gas sector development in terms ofsupply infrastructure and transmission infrastructure. ;ith the expected growth inthe gas supply and the simultaneous creation of gas interstate transmissioninfrastructure in India, this sector is bound to grow in the TI %lan period. ;ith theemphasis on clean environment, this sector would get the necessary thrust in thecoming years. In line with this, various players, primarily led by &)I, have drawnup ambitious plans to roll out city gas infrastructure across a number of cities in thecountry. !he current demand estimate in this sector is about


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ahead with its plan, &)I has so far implemented +ity gas projects in


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1aharashtra

D. 1aharash %une

1aharashtra

/atural

&)I, (%+&ovt. of

*upply of %/&7 +/&under implementation.!he .0ttar

/oidaIndraprastha&as

&)I, (%+&ovt. of +/& being supplied.

?.

0ttarucknow

&reen &as

&)I, IB+

&ovt. of 0ttar +/& being supplied.

.0ttar

$anpur+entral 0p&as

&)I,(%+&ovt.of +/& being supplied.

G.)ndhra ijayawa

da ,(hagyanagar&as

&)I, H%+&ovt. of +/& being supplied. .

2. !ripura )gartala

!ripura/atural&as

&)I, &ovt.of !ripura C&ovt. of %/&7 +/& being

=.1adhya

Indore)avantika&as

&)I,H%+ C&ovt. of

*upply of %/&7+/&is under

urrent o:ordinates

In the view of the emerging changes in the Hydrocarbon *ector and with theformation of %/&8(, it is essential for &)IKs growth that the business strategy beamended suitably and action plan with time frame is 5uickly firmed up. )ccordingly a

detailed +ity &as *trategy 8oadmap has been prepared for implementation of +ity&as %rojects in DE3 cities identified contiguous to existing and proposed pipeline in aphased manner in ? years hori:on.

GAILs main strategy for city gas distri;ution is through Joint /entures.


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his heps in infrastructure deveopment and gives a systematic approach

to the pro


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he ity Gas 2pportunity

!he emerging change in +ity gas7+/& consumption pattern in India is evidentthrough its growth from ?@ currently. In fact, theconsumption in India9s domestic sector is substantially low as compared to that indeveloped economies like 0*) and 0$ where the domestic and commercialconsumption of natural gas is over >3@ of total consumption. !his onlydemonstrates the potential for huge expansion and growth in this area. !he higherexpected availability of gas and aggressive growth plans of various players arelikely to boost the supply, and as a result, demand in household and transport sector.It is projected that +&' projects would account for nearly D3 11*+1' ofgas in the long run as against the current consumption of ? 11*+1'. Inaddition to these, the demand from commercial and industrial sectors like glass,ceramics, tea plantation etc also is expected to grow at a fast pace. !hus, the +&'segment in India is an opportunity waiting to be tapped.


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,hapter:5

8esults and 'iscussion

!he following are the results of the studyJ

6 eveopment F Modifications of Poymer Grades

&)I owns a large %etrochemical +omplex at %ata -0%, where different grades ofpolymers are developed 7 modified depending upon customer re5uirement.

6 "etting of Joint /enture Agreements for ity Gas Pro


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6 India currenty operates && gas processing pants. !hese plantsprepare the gas for transportation in the transmission system and extractvaluable %&s.

6 3orms of Market !isk

6 &as %rice8isk

Z *hort term volatility vs. ong term price trends

Z *tructural changes in the market

Z &eopoliticalissues

6 &as *upply 8isk

Z +ompetition from other supplies 8eservoir and facility risk

6&as 1arketing 8isk

Z +ompetition from other marketers 1arketing strategy and alignment

Z Gas Price !isk

/o direct control of prices

[!he first major means of mitigation is by minimi:ing construction costs

Z &as sales contracting strategy or strategies

Z "inancial hedging tools4 futures, options

Z 'esign7plan for access to multiple markets

Z 8isk vs. Bpportunity

&as 1arketing 8isk

Z +ompetition from other marketers

Z )bility to attract proper mix of buyers7contracts

Z )bility to obtain transport needed


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"trategy and aignment

alueadding vs. risk averse strategy Brgani:ational alignment to meet strategy

X)ccretiveX business relationships

Z Joint ventures

Z Managing ,ontracted Asset Managers

Z !oes of the"tateGs Gas Marketer

. 1anage transportation capacity

?. %repare for and participate in Bpen *easons

. *ell *tateKs &as. In*tate C Axport sales.

G. 1anage the mix of sales contracts, financial tools and markets to minimi:e riskand maximi:e returns in accordance with established policy.

Z &as1arketing Bptions


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,hapter:'

+onclusion C *cope for further work

&)I has ambitions to be a highly efficient integrated gas company, withinterests from field development and production, through national transmission andimports, to distribution and allied industries such as petrochemicals. !hese ambitionsare not limited to India, as &)I is building a portfolio of international upstream anddownstream gas assets. lt dominates domestic infrastructure and gas purchasing fromdomestic suppliers.

;ith its diverse business portfolios, &)I is one of the highest profit making/avartnas and with its strategic alliances with the other key players, it is 5uite sure of&)I to retain its dominant position.

It is India9s largest gas transmission company and holds an enormous customer basewith its 5uality assured service.

&)I operates the countryKs largest gasfired petrochemicals complex, with an installedpolyethylene -%A capacity of D3,333tpa. !he variety of grades offered by &)I tocater to its customer needs, shows its customer focus approach.

&)I, probably would not face any threats from the competitors or from the imports asthe demand of petrochemicals is going to rise up and the imports would be a help tosustain the increased re5uirements. It is beyond contention that +ity &as projectimplementation is definitely going to play a significant role in the growth of Indian

economy. !he next decade is going to be the decade of +ity &as 'istribution inIndia. "or &)I, this would be a continuing journey of creating new economic andsocial opportunities and developing business competencies.

;ith recent developments in natural gas sector, some players have advantage onthe supply side while others are strong on the distribution part. It is time ofcooperation and competition.

India needs to put in place policies, incentives and infrastructure to prepare for risingconsumption of natural gas to >33bcm in D3E3, according to a study released in #anuaryD33G. K)ssuming that each additional bcm of gas will cost about 0*M lbn to develop,

this would imply an investment of more than 0*ME?bn byD3E3,K the study by %etroleum *ecretary 1 * *rinivasan said.

Importance of effective regulation cannot be overemphasi:ed. !he gas industry inIndia is still at a nascent stage and the regulatorKs role would be crucial in ensuringgood customer service and stimulating investments by ensuring a level playing fieldfor all players. !he &overnment needs to be complimented for timely enactment of the%/&8( )ct D33, due to which the %etroleum C /atural &as 8egulatory(oard is a reality now. 8egulation is crucial to ensure that the natural monopoliesvested in distribution companies is not abused while also allowing for an ade5uaterate of return on their investment. !he 8egulator will oversee the


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construction of new distribution networks and proposed additions to the network whiledisallowing unnecessary duplication of investment and effort.

!he 8egulator can also ensure that *tandards C +ode of %ractice are followedto take care of human safety C consumer interest at large.

"cope for further =ork

. ikely impact of key &overnment %olicies and )cts on

competition.


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,hapter:6

8ecommendations for Improvement

)he outcomes of the research and the analysis conducted, resulted in

recommendations for GAIL 'India( Ltd which deserves management attention )he

points are as follows:

. &)I is not exploiting the market affordability of large proportion of their gas.

?. 'omestic gas connection needs to be augmented.

. &)I should exploit the northern belt and tie up with companies locatednear the belt.

G. In gas marketing, the eastern belt -(ihar, ;est (engal should be tappedas there is tremendous potential as well as opportunity which can be harnessed.

2. &)I has its legs stretched till $& (asin and the $ochi$anjirkkod

(angalore71angalore pipeline has been laid. !his calls for the customertapping who are located in the vicinity of the pipelines.

=. /aphtha cracker unit should be installed following which successfuldiversification into chemicals can be made possible.


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,hapter:(

8eferences

. &)I -India td.9s 3=e;sites

. w w w .in fr a li n e .c o m

?. w w w.r il . c o m
http://www.businessmonitoronline.com/http://www.gailonline.com/http://www.haldiapetrochemicals.com/http://www.infraline.com/http://www.ril.com/http://www.ril.com/http://www.gailonline.com/http://www.haldiapetrochemicals.com/http://www.infraline.com/http://www.ril.com/http://www.businessmonitoronline.com/

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