The public sector Gas Authority of India Limited or GAIL has sought its shareholders nod to amend the charter of the company to invest in start-ups, build solar power plants and set up battery charging stations for electric vehicles as it looks to diversify its portfolio beyond gas and petrochemicals.
It is no secret that PSU’s work under special conditions, even when they operate in competitive markets. Be it the pressure of social responsibility goals, or lesser flexibility on key operational issues like HR, financial investments or even diversifications, the move by GAIL, to explore significant deviations from its stated aim is interesting. It is significant enough to require a change in its main memorandum of association (MOA). Does it make sense for it? Perhaps, the more pertinent question is, why is it doing it?
In a move that has been widely reported, GAIL wants to invest in ‘start-ups in core business areas and non-core areas (like health, social and environment, safety, and security) either directly or indirectly. The investment reportedly can be made through special purpose vehicle (SPV), an alternative investment fund (AIF), fund of funds (FoF) and trust.
According to the shareholder notice, the largest state-owned natural gas processing and distribution company, wants to insert six new sections in the main objects clause of the memorandum of association of the company.
GAIL claims that there is a necessity to adopt new and different pathways to provide clean, cost-effective and efficient mobility services that are safe, reduce dependence on oil imports.
Besides, to achieve ‘more efficient land-use’ in cities with the least environmental footprints and impacts on human health, GAIL wants to set up “battery charging stations and providing charging services” to electric vehicles.
With the government planning to make a major shift to electric vehicles by 2030, GAIL feels that charging infrastructure for electric vehicles in India needs more push to fully develop.
So what could go wrong? Plenty, in our view. Previous efforts by GAIL to diversify away have met with limited success in our view.
Its investment into the country’s first coal gas-based fertiliser project, along with three public sector majors, has already suffered a cost overrun of over Rs 2,000 crores.
Four public sector entities – GAIL, Coal India, Fertilizer Corp and Rashtriya Chemicals and Fertilizers – are jointly investing more than Rs 10,000 crore to set up India’s maiden fertiliser project based on coal converted into gas in Odisha against Rs 8,000 crore estimated earlier. And we are not done yet.
The proposed move into EV charging also seems to be a poor idea, as it will go against nimble private sector players, and if anyone, it should be the existing fuel marketing PSU’s with their established network of charging stations that should take the plunge.
Investing in startups and more such businesses come with its own challenges, requiring as it does a serious appetite for risk, and the stomach for taking a hit, a situation that is likely to lead to fraud investigations in a PSU milieu.
We believe GAIL has enough on its hands, as the effective custodian of India’s ‘Gas Highways’, and it should be more focused on making those more successful. It has the huge eastern gas corridor project to complete right now, along with the city gas rights for 7 cities along the way. Yes, there is a challenge as two of its largest customer segments, the power and fertiliser sector are both struggling with their own unique challenges, but expansion into other areas is hardly the best option in hand.
GAIL could possibly look at becoming a 100% renewable powered firm rather than getting into the solar business itself. A deadline of 2022, a year much favoured by the Prime Minister, is a good date to go for.