CRISIL’s ratings on Reliance Gas Transportation Infrastructure Ltd’s (RGTIL’s) debt programmes and bank facilities continue to reflect RGTIL’s contractual commitments and strong operational linkages with Reliance Industries Ltd (RIL, rated ‘AAA/Stable/P1+’ by CRISIL) for evacuation of natural gas from the Krishna-Godavari (KG) basin reserves. The ratings are underpinned by the favourable project economics and regulated tariff that are expected to lend stability to RGTIL’s cash flows.

RGTIL started operating the East West Gas Pipeline (EWPL) from April 2009 onwards. It is currently transporting around 60 million metric standard cubic metres per day (mmscmd), against expectations of around 80 mmscmd, because of delay in ramp-up of gas production by RIL. The pipeline is critical to RIL for transporting natural gas to the consumption markets on India’s western coast, and along the pipeline route. EWPL is the only pipeline that has sufficient capacity to transport the large gas production.The pipeline extends from the east coast, which has prolific reserves in the KG basin, to the west coast, where there is large demand for natural gas. Though RIL is expected to utilise the entire capacity, in case of availability of spare capacity, it could be utilised by several gas discoveries which are currently being developed. Hence, there is significant demand for the pipeline, which will ensure its high capacity utilisation.

For 2009-10 (refers to financial year, April 1 to March 31), RGTIL reported operating profit of Rs. 21.7 billion and high operating margin of around 84 per cent, despite its lower average volumes of around 40 mmscmd during the year. However, it reported losses at the net level because of sizeable depreciation of Rs.15.7 billion. Despite the substantial debt-funding of the project, the cash flows from the project are likely to be stable and predictable, backed by the regulated nature of gas transportation assets.

The regulator, Petroleum and Natural Gas Regulatory Board (PNGRB), has recently fixed the provisional tariff for natural gas transportation, which is in line with CRISIL’s earlier estimate based on the entire capacity of 80 mmscmd. RGTIL has applied to PNGRB for revising the tariff in line with the actual transportation of gas. The regulator is now in the process of fixing the final tariff. The pipeline has been operating at 60 mmscmd; Neverthless, in case of significant reduction in volume of production of gas by RIL below a certain level, RGTIL is entitled to receive advance payments which can be adjusted against future use of capacity. The revenues are also dependent on future gas offtake from RIL’s fields in the KG Basin — RIL has entered into formal agreements with offtakers for supply of natural gas for its current gas production capacity. Further, proximity to other gas discoveries will ensure significant demand for the pipeline, resulting in high capacity utilization.

Outlook: stable
CRISIL believes that the expected strong operating cash flows will enable RGTIL to service its debt obligations. The outlook may be revised to ‘Negative’ if RGTIL undertakes additional trunk pipeline projects, with dependence on debt.

About the Company
Incorporated in 1999, RGTIL has built, and is operating the 1386-kilometre (km) cross-country pipeline to evacuate natural gas produced by RIL’s D6 block and gas production from other discoveries, in the KG basin, off the eastern coast of Andhra Pradesh. EWPL transmission system connects gas sources on the eastern coast with markets on the western coast. The pipeline extends from Kakinada to Bharuch, and has a capacity to transport up to 80 mmscmd of natural gas; it is currently transporting around 60 mmscmd. The infrastructure required to transport 80 mmscmd of natural gas is in place and the ramp-up would depend on extent of increase of production by RIL and gas production by other discoverers. RGTIL is a wholly owned subsidiary of Reliance Utilities Pvt Ltd, a promoter group company.

For 2009-10, RGTIL reported a net loss of Rs.2.1 billion on net sales of Rs.25.6 billion, against a net loss of Rs.10.6 billion on net sales of Rs.80 million for the previous year.

RIL is India’s largest private sector company. Over the years, the company has grown into an entity with diverse interests - petrochemicals, oil refining, and oil and gas exploration and production (E&P).

For 2009-10 (refers to financial year, April 1 to March 31), RIL reported a profit after tax (PAT) of Rs.162 billion on net sales of Rs.1.92 trillion, against a PAT of Rs.153 billion on net sales of Rs.1.46 trillion for the previous year.