Gas Authority of India Ltd (GAIL) finds itself in a pretty pickle. And try as hard as it might, it can’t seem to get out of it because of a string of quixotic decisions taken by the bureaucracy over several decades that no one wants to undo.

Ever since it was formed in 1984, GAIL had only one ambition: it wanted to be India’s King of Gas. Although it didn’t produce any gas, it was given the remit to distribute gas across the country.

GAIL had always wanted to own and operate an LNG terminal on the west coast. When it floated the idea, it was quickly checkmated because Enron – the scandal-hit US energy giant – was able to influence the government of the day and won approvals for an LNG terminal at Dabhol as part of what turned out to be a badly-jinxed power project that was touted as the biggest foreign investment of that time.

There is a little back story that illustrates just how much influence Enron wielded over the government at that time. At about the same time that it was trying to persuade the powers that be to clear its power project, it was also looking to bid along with Reliance Industries for the Panna, Mukta, Tapti (PMT) fields on the west coast.

The successful bidder was the BHP-Tata Petrodyne combine. The BHP representative, Mr Fysh, who rushed from Australia to negotiate with the Ministry of Petroleum and Natural Gas was apparently advised to meet a political functionary first. Fysh was promptly asked to deposit $ 3 million with a friend in Singapore. He refused to do so on the ground that BHP did not pay bribes. Within two hours, the BHP-led consortium was out and Enron-RIL was called in.

With the collapse of Enron, the operatorship of PMT fields went to BG. ONGC, which is a partner in the PMT consortium, wanted to become the operator but the then minister Pramod Mahajan saw to it that it went to BG. The PMT deal forced a senior ministry official, who feared arrest, to quit the IAS and leave the country on the ostensible ground that he had secured an overseas assignment.

But the way the bureaucracy works is strange: it can dispense a favour – and then outweigh the benefit with a deadweight loss. When the Dabhol terminal started to languish after the collapse of Enron, GAIL was asked to take control of the terminal – giving it the long-awaited benefit of owning a terminal on the west coast. But it also asked to join forces with NTPC to bail out the chequered Dabhol power project as well.

The Dabhol project has been an albatross around the neck of GAIL, which it can’t easily shake off as it was a political decision. That was the sort of protection that the financial institutions insisted on when they were persuaded to stump up funds to revive the Dabhol power project, which has since been rechristened as Ratnagiri Gas and Power Private Ltd (RGPPL).

India’s entry into the LNG market to meet domestic demand began much later. GAIL legitimately expected to be put in charge of LNG imports as it was the only company with the requisite expertise in the gas business. But the petroleum ministry under Dr Vijay Kelkar had different ideas. He wanted the LNG import company to be formed in the private sector with public sector participation limited to 50 per cent of the equity. Thus, Petronet LNG Ltd (PLL) was created with four PSU petroleum companies -- ONGC, IOC, BPCL, and GAIL -- together holding a 50 per cent stake and the rest shared among Gaz de France, ADB and financial institutions.

Kelkar wanted K.K. Kapoor, the retiring CMD of GAIL, to head PLL as he was known to be honest and a financial disciplinarian. But this was not to be. Kelkar was soon out of the ministry and was succeeded by Prabir Sengupta who preferred Suresh Mathur of IOC for the job. Mathur’s lack of experience in the gas business, coupled with interference by political leadership and some corrupt petroleum secretaries who became ex-officio chairpersons of PLL, played havoc with the company’s fortunes and India’s LNG business. In retrospect, it appears that this tragedy could have been averted, or at least minimized, had GAIL been put in charge of the LNG business.

The LNG scene in India is hugely confusing. Almost everyone in the petroleum sector is scrambling to acquire an LNG terminal, either alone or in partnership. After its dream of having a terminal on the west coast failed, GAIL under the leadership of Prashant Banerjee proposed a terminal at Kakinada on the east coast. HPCL was also keen on to have a terminal on the east coast. Even as its project at Kochi is struggling for survival, PLL proposed one on the east coast at Gangavaram in Andhra Pradesh. PLL’s CEO, Dr A.K. Balyan, originally planned it on the Orissa coast so that Calcutta could also be served. But Jaipal Reddy, the then petroleum minister, is believed to have prevailed on him to locate it in Andhra. The project’s future now looks uncertain with petroleum secretary Saurabh Chandra, who is also the chairman of PLL, insisting on tying up the market before the project is finally cleared. There are no takers for its Kochi LNG as it turns out to be among the costliest even by international standards. Saurabh Chandra does not want PLL’s east coast terminal to face Kochi’s fate.

GAIL in the recent past entered into an understanding with Shell and the Government of Andhra Pradesh to float an LNG terminal on the east coast. There is no certainty that the project will take off and there are unconfirmed reports that Shell is not all that keen to go ahead with it.

Now comes the news that the financial institutions, which have a considerable stake in RGPPL, are keen to hive off the LNG terminal from the Dabhol Power Project as that it is the only way that RGPPL can ward off the prospect of being reduced to a non-performing account (NPA) on their books – with all the rigours that such a declaration can involve.

GAIL, under the leadership of B.C. Tripathi, has been buying up LNG assets overseas. It is now in the process of placing orders for ships to transport LNG to India. It is in GAIL’s interest to have a terminal of its own. It is the operator of the Dabhol terminal by virtue of the stake it holds, along with NTPC, in RGPPL. But it needs to raise a lot of fresh capital to make the terminal operational and enhance capacity from the present level of 2.5 million tons per annum to 5 million tons per annum. But if LNG terminal is hived off, the burden of the power plant will become unbearable. The burden can be minimised only if gas prices are pooled. Though the government remains committed to pooling of prices, the move has hit so many practical difficulties. GAIL cannot wriggle out of the power project unless the government permits it to do so.

Will Tripathi be able to persuade the NDA government to restructure RGPPL in such a say that the entire LNG terminal comes to GAIL?

GAIL is a cash-rich company which has the capacity to infuse the entire additional capital required for the Dabhol LNG terminal. Energy minister Pishush Goyal has agreed to the proposal to hive off the LNG terminal. But the question is whether the government is willing to let GAIL walk away from the power project.