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Management Discussion  
GAIL (India) Ltd.
 
BSE Code 532155
ISIN Demat INE129A01019
Book Value(Rs.) 105.62
NSE Code GAIL
Dividend Yield % 3.27
Market Cap(Rs. in millions) 552492.38
P/E 9.13
EPS 13.42
Face Value(Rs.) 10  
Year End: March 2015
 

MANAGEMENT DISCUSSION AND ANALYSIS

1.ENERGY SECTOR : AN OVERVIEW

Global energy consumption is growing continuously despite slowdown in economic growth in many developed countries. As per BP Statistical Review 2015, global primary energy consumption increased by nearly 0.9% in 2014 over the brvious year.

Energy consumption worldwide continues to be dominated by oil which remains the world's leading fuel, contributing to 32.6% of global energy consumption. There is a marginal decrease in the share of natural gas in global energy mix for 2014 as compared to 2013 from 23.8 % to 23.7%. Global natural gas consumption in 2014 increased by a meagre 0.4% over the brvious year.

The year 2014 was a very significant year for the energy sector due to the drastic and unexpected fall in oil prices. The price of a barrel of crude oil crashed over the second half of the year from about $110 to about $48, which is the lowest in last six years. It was a result of multiple factors like massive growth in crude oil supply from the US, growing supply from Russia and other Middle-East countries, unwillingness of OPEC to cut production, and a general slowdown in the global economy. Despite unbrdictable headwinds, the global economic recovery is gaining momentum.

The crash in oil prices brought mixed results for markets in India. The Government utilized this opportunity to eliminate or reduce fuel subsidies and raise taxes. It scrapped the diesel subsidy last year. However, high volatility in energy prices has become a critical concern for both consumers and suppliers. Further, crash of crude prices has led to a peculiar situation in which spot prices of LNG are way below the price of long term LNG imported into India. As a result, domestic customers have been shying away from meeting their long term contractual obligations under the LNG supply contracts. The debrssed off take of long term LNG and a brference for spot LNG is creating several attendant challenges for gas suppliers, transporters and marketers alike, due to back-to-back tie-ups committed by them in the entire gas valuechain.

Energy Sectorin India

India has emerged as one of the fastest growing economies in the world. Energy sector holds the key in accelerating India's economic growth. The rapidly growing industrial base, urbanization, as well as improvement in the standard of living have widened the gap between energy demand and supply. With a growing economy andl.26 billion people aspiring for a better quality of life, energy demand growth is inevitable in India. During2014, India was the 4* largest consumer of energy in the world after China, USA and Russia. It consumes more than 4.9% of the world's energy consumption. By 2025, it is expected that China and India will emerge as biggest energy consumers after the USA.

India is now3rd largest coal market in the world .The share of coal in its energy mix grew by approx. 2% (54.5 % to 56.5%) from the brvious year, with a record increase in consumption by 35.9 mtoe for 2014. With the fresh supply from newly allocated coal blocks, brssure is being felt on the already squeezed natural gas market of India. In the power sector, more coal is supplied for power production, on the other side many natural gas based power plants areidle.

In the brsent energy basket, share of coal is 56.5%, oil 28.3 %, natural gas 7.1%, hydroelectric 4.6%, renewable 2.2% and nuclear 1.2%. Because of limited domestic production, India has become increasingly dependent on energy imports. It has 5.7 billion barrels of oil reserves (0.3% of global oil reserves), 1.4 trillion cubic meters of gas reserves (0.8% of global gas reserves), along with almost 6.8% of global coal reserves. India imported77% of its oil and 37% of its natural gas for consumption in the year 2014.

2. NATURAL GAS SECTOR: AN OVERVIEW

Demand and Supply

India's natural gas consumption has consistently exceeded domestic production. LNG imports have historically helped to meet the rising demand supply gap. In recent years, the Indian natural gas sector has faced a significant downturn due to low availability of domestic gas. Gas production in India has declined by 5.9 % and gas consumption has declined by 1.5 % in 2014 compared to 2013. In absolute terms, the country's production and consumption of natural gas in the year 2014 was 31.7 and 50.6 bcm respectively.

Natural gas sales to different sectors have seen a decrease in the current year as compared to last year. There has been a decrease in gas supply to power, fertiliser and other sectors so far whereas sectors like city gas and self-consumption have seen an increase during the year.

Policy Initiatives

The Government of India initiated new policies to attract investments and trigger demand in the gas sector with an aim to boost domestic production in the country. Some of the key policy initiatives taken were:

• New Gas Pricing Formula

The Government approved a New Gas Pricing Formula in October 2014 and releasedthe NewGas PricingGuidelines,2014.The new formula has fixed price of almost all domestically produced natural gas at 4.66 US 5/MMBTU - GCV until September 30, 2015. The formula uses average price at Henry Hub of USA, National balancing point of the UK, rates in Alberta (Canada) and Russia with a lagof one quarter.

• Gas Grid Infrastructure

In addition to the existing 15,000 km gas pipeline network, another 15,000 km has been planned for completion of the  National Gas Grid.

• Innovative mechanism for utilization of stranded gas based generation capacity

To revive stranded power projects with investment worth Rs.60,000 Crores, Government of India approved an innovative policy and tax support package for power generating companies to enable them to use costly imported gas (LNG)for generating electricity.

On 27th March 2015, Ministry of Power notified a Scheme for utilisation of gas based power generation capacity in the country for the years 2015-16 and 2016-17. Your Company is the designated agency for procurement of e-bidRLNG under the proposed scheme. The scheme envisages supply of Spot RLNG "e-bid RLNG" to stranded plants as well as plants receiving domestic Gas to be selected through a reverse e-bidding process.

Separate bidding rounds will be conducted for the monsoon period (May to September) and non-monsoon period (October to April) during each financial year.The volumes expected to be supplied are in the range of 8­10 MMSCMD during Monsoon period and 15-18 MMSCMD during the non-monsoon period.

• Innovative mechanism for uniform delivered prices for Fertilizer units

Government of India has also approved a scheme for Gas Pooling in Fertilizer Sector, which was notified by MoP&NG on 20th May 2015. As per the scheme, domestic gas will be pooled with RLNG to provide natural gas at a uniform delivered price to all the gas-based urea plants for the purpose of manufacturing urea. The scheme envisages pooling of gas to be implemented in two phases:

a. Phase-I-From2015-16to2017-l8forexistingurea plants,and

b. Phase-ll - From 2018-19 onwards which shall also include Brownfield/Greenfield projects.

Your Company has been appointed as the Pool Operator and has been entrusted with the responsibility of undertaking bidding process to source additional RLNG to meet the requirement of about 4-5 MMSCMD gas for fertilizer Sector.

• Allocation of domestic gas for CGD business

Various guidelines have been issued by MoP&NG since November 2013 for allocation / supply of domestic natural gas to meet the gas requirement of CGD entities for CNG (transport) and PNG (domestic) segments based on their actual consumption level. At brsent, domestic gas is beingal located to CGD entities by your Company as per their actual consumption at the end of every six months. In terms of these Guidelines, your Company has been authorized to supply domestic gas 10% over and above thel00% requirement of CNG (transport) and PNG (domestic) of individual CGD entity.

• Revival of  Fertiliser Plants

Government of India has initiated the revival of fertilizer plants of FCI-Gorakhpur, FCI-Sindri and HFC-ESarauni. The agreement for revival of these plants by the selected bidder is expected by the end of current financial year. The revival of FCI, Gorakhpur and HFC Barauni and new matix, fertiliser plant at Panagarh is expected to result in higher gas demand of around 6-7 MMSCMD. The gas shall be supplied through your Company's Jagadishpur-Haldia Pipeline once the gas supply agreements areinplace.

Outlook

• Gas Consumption

As per IEA Energy Outlook 2014 for India, natural gas market remains restrained over the next few years, after which rising LNG imports and higher domestic production sustain demand growth. However, with an improvement in the supply situation, consumption is forecast to pick up in the latter part of the decade. India's gas consumption is estimated to increase from 57 bcm in 2012 to 82 bcm in 2020 and about 200 bcm in 2040, driven by higher demand from the power sector (although the share of gas reaches only 12% by 2040) and for road transport. The power sector is expected to lead the way accounting for almost half of total gas use by 2040.

3. BUSINESS OVERVIEW

• Global footprints

2014 was a turbulent year for the industry and your Company. After several years of high prices, oil and gas prices fell dramatically in the international markets and returned to their familiar pattern of volatility. The domestic gas scenario was also erratic. Indian energy sector is still searching for competitive fuels despite the downward trend in international oil and gas prices. Your Company is constantly expanding its global brsence through its participation along the natural gas value chain. It is also evaluating various global opportunities with the prime objective of securing gas supplies for the energy security of the country.

Making the right investment choices continues to be the highest priority. Your Company continues to actively manage its portfolio, focusing on assets which play to its strengths and divesting assets that no longer fit its strategy. In 2014, GGULL signed Gas Sales & Purchase Agreement (GSPA) with WGL Midstream, Inc. for sourcing of gas on delivered basis at the inlet of cove point pipeline / terminal for a term of 20 years to produce about 2.3 MMTPA of LNG at the cove point terminal. Earlier in 2011, your Company contracted 3.5 MMTPA of LNG from Cheniere Energy, USA on FOB basis for an initial period of 20 years. In 2013, your Company also signed a Terminal Service Agreement (TSA) for booking of 2.3 MMTPA of liquefaction capacity in dominion cove point terminal for 20 years.

Shale gas has already had a significant impact on the US gas prices and demand, and is expected to contribute a major share of global natural gas supplies in future. GGUI, a wholly owned subsidiary of your Company, has undertaken an investment in the Eagle Ford shale gas asset by executing a definitive agreement with Carrizo Oil & Gas Inc., USA (Carrizo) to enter into an unincorporated Joint Venture (JV) in the Eagle Ford Shale asset in Texas. GGUI has acquired a 20% participating interest in the JV. During the year 12 wells came online, making total online wells to 79 as on December31,2014.

Your Company expects the growing population and rising per capita incomes in India will continue to drive demand for energy upwards. Natural gas, in particular, is likely to play an increasing role in meeting domestic demand. Your Company is making all efforts to market the gas sourced globally to cater to the domestic requirement. The primary purpose of your Company's shipping and chartering activities is to transport the Group's natural gas sourced globally by group companies using a combination of time-chartered and spot-chartered vessels In order to transport LNG from the USA to India, your Company is in the process of Charter hiring of LNG ships through an international competitive bidding process

Your Company is steadfastly pursuing the TAPI Pipeline project to receive Natural Gas supply from the Galkynysh fields in Turkmenistan. The pipeline consortium Company, TAPI Pipeline Company Limited was incorporated on 11th November 2014 in 'Isle of Man', a British Crown dependency located in the Irish Sea, with a mandate to build, own and operate theproposedTAPI Pipeline.

Your Company holds equity interest in two retail gas companies in Egypt, namely Fayum Gas Company (FGC) and National Gas Company (Natgas). These city gas distribution companies are involved in the supply of gas to residential, commercial and small industrial customers in Egypt. Your Company is also an equity partner in China Gas Holdings Limited (China Gas), a retail gas Company involved in city gas and CNG business in China.

• Domestic Presence

? Natural Gas Transmission

Your Company is the market leader in the transmission of naturalgas with a network of almostll.OOO km. Based on feedback received from existing shippers, your Company has taken steps to make transmission services more user friendly. Further, your Company also sought Exbrssion of Interest from potential shippers for booking of capacity in its various upcoming natural gas pipelines to ensure utilization of its pipeline infrastructure. It has also taken a number of initiatives to broaden the natural gas market in India including hiring of specialized agencies to carry out demand estimation exercise in various states. Your Company has developed Gas Transmission Agreement meeting specific requirement of all type of Shippers (small, medium and large). It has a Last Mile Connectivity policy under which faster decisions are taken for providing pipeline connectivity to the customers which ensure increase in pipeline utilization capacity. Agreements were executed with various shippers in Andhra Pradesh to transport and supply gas through swapping mechanism to meet their shortfall of gas for power production. Besides, new tie-ups (on upcoming pipelines) were executed to ensure utilization of pipelines owned and operated by your Company. With respect to LNG, execution of GTAs with number of shippers is under progress to transport the gas.

? Inter-State Gas Grid

Your Company is implementing three major natural gas pipelines:

• Kochi - Koottanad Bengaluru/Mangalore Pipeline (Phase-ll)

• Jagdishpur- HaldiaPipeline(JHPL)

• Vijaipur-Auraiya-Phulpur Spurline(VAPPL)

Construction activities for JHPL will be taken in phases and brsently, is being taken up for Patna-Dobhi-Barauni section and thereafter Phulpur-Dobhi section including spurlines to Gorakhpur and Varanasi. VAPPL will be executed to cater to the additional demand of existing customers enroute, upcoming fertilizer plants and city gas distribution projects envisaged along JHPL.

Your Company has been identified as 'Sponsoring Authority' for implementation of Ranchi- Talcher-Paradip pipeline (approximate length 670 km) for transmission of natural gas under 'Public Private Partnership'mode.

Additionally, your Company is also executing spurlines for connectivity to Chittorgarh in Rajasthan. It is also upgrading its

To make effective use of the commissioned trunk pipelines, execution of the last mile consumer connectivity is also being carried out. During the year 2014-15, approximately 128.90 kms of last mile pipeline connectivity has been extended to 36 consumers for supplying 2.43 MMSCMD of Natural Gas. Under the Last Mile connectivity plan for theyear2015-l6,yourCompanyhas a target for laying aroundl30 km pipelines.

? Sourcingand Trading of Gas

Your Company's efforts towards meeting long-term energy requirements have yielded positive results.The long-term LNG supply projects from the USA, namely Sabine Pass and Dominion Cove Point, have achieved significant project milestones and are on course to commence supplies between fourth quarter of 2017 to first quarter of 2018. During the year, your Company executed an agreement with WGL Midstream Inc. to provide gas supply for liquefaction under its tolling capacity agreement at Dominion Cove Point. Your Company has also made progress in the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project with the formation of TAPI Pipeline Company Limited (TPCL) by member countries to build, own and operate the planned 1800 km transnational pipeline. This combined with its LNG supply agreements from Qatar, Australia, and Russia has propelled your Company on the global stage.This diversified portfolio provides your Company the flexibility to serve its customers in the best possible manner in a competitive business environment over the long-run.

To meet the short/medium-term demand, your Company has executed a one-year supply contract with Petronas LNG, Malaysia to supplement its existing short/medium-term portfolio. Your Company has imported 23 LNG cargoes (equivalent to approximately 1.40 MMTPA of LNG) duringthe financial year from various international sources on short term and spot basis to meet immediate domestic gas requirement.

Considering the various upstream tie-ups made by your Company, which are expected to commence supplies from 2018 onwards, access to Dabhol LNG terminal of RGPPL provides greater operational flexibility to your Company in spot LNG business. This terminal is well located with ready access to an extensive network of gas infrastructure for distribution to high demand western/northern regions and upcoming southern markets. Further the construction of breakwater will assure that the terminal is operational throughout the year in its full capacity. During the year, ten LNG cargoes were unloaded at Dabhol terminal. RGPPL's is working with all stakeholders to its long-term viability, which includes demerger of LNG terminal and power plant.

Your Company has also been trading some of its LNG portfolio in the international market through its Singapore subsidiary in line with globalization strategy to evolve as a leading LNG player in the world. It is also focusing on making upstream investments in gas assets, liquefaction facilities and LNG shipping to build a brsence across the entire LNG value chain. This will enable it to achieve the twin objectives of enhancing the nation's energy security and creating flexibility for providing better value to its customers. Your Company is planning to set up an FSRU/Re-gasification terminal on east coast of India. In this regard, discussions are on with M/s Adani Ports and Special Economic Zone Ltd (APSEZ) for equity participation and booking of capacity in the proposed regasification terminal at Dhamra port in Odisha

• Petrochemicals

The robust growth in petrochemicals business in India provides an opportunity for your Company to expand its petrochemical business further. Over the last 15 years, your Company has emerged as one of the leading petrochemical companies with a pan-India marketing network. In order to strengthen the petrochemical business, it is proposed to increase petrochemical capacity through brown and green field projects, in addition to expansion of the product portfolio. The year witnessed a sharp decline in feedstock and product prices. Polymer prices also declined on an absolute basis, with year-end prices 15-19% lower than prices at the beginning of the year.

Your Company has doubled the petrochemicals production capacity of Pata plant to 900,000 TPA. The mechanical completion of the project has already been achieved. All the utilities are successfully commissioned. The gas cracking and polymer production has started in March 2015.

The green field petrochemical projects promoted by your Company through Brahmaputra Cracker and Polymer Limited (BCPL) and ONGC Petro-additions Limited (OPaL) are in advanced stage of completion. With the commissioning of these plants, your Company would be able to achieve a petrochemical portfolio of 1.7 MMTPA for marketing in India and abroad.

• LPG and Other Liquid Hydrocarbons

Your Company has 7 LPG plants in the country having a production capacity of 1.40 Million MT of LPG and other liquid hydrocarbons viz. Propane, Pentane and Naphtha.

Your Company also owns and operates exclusive pipelines for LPG transmission for third-party usage. It operates 2 LPG Pipeline transmission systems with a network length of 2,038 km and a capacity totransportupto3.8MMTPAofLPG.

• Exploration & Production

Your Company is participating in 15 E&P blocks (13 in India and 2 overseas in Myanmar). While production is in progress in 4 blocks, development and appraisal activities are in progress in 2 blocks, where hydrocarbon discoveries have been made.

Low prospective exploration assets have been further reviewed during this year to balance the portfolio mix and gradually shift towards more assets under production and development. The mix of stages of E&P blocks has already improved to reduce the risk perception of E&P business as a whole and also resulting in E& Pbeing self-sustainable.

• Renewables

With technological advances, government incentives and environmental imperatives driving rapid growth in renewable energy, your Company is taking a keen interest, particularly in wind and solar energy. Your Company has a total installed capacity of 123MWof which 118MW is wind and 5 MW is solar energy plant. Your Company intends to expand its wind and solar energy portfolio in the coming years.

4. FINANCIAL PERFORMANCE

Indian natural gas sector faced a considerable downturn due to low availability of domestic gas. The volume of RILKGD6 gas has reduced from an average 30.50 MMSCMD in 2010-11 to 8.77 MMSCMD in 2014-15. The domestic production of natural gas has kept moving on a downward trend in the last few years. The fall in crude oil prices to the levels of U5$ 50 - 55 per barrel has resulted in reduced spot LNG price to less than US$10 per MMBTU which is much lower than long term contracted LNG price due to which many consumers are not off taking the contracted quantity of LNG from Rasgas. The fall in crude oil prices has also resulted in lower price realization in LHC and polymers.

The reduction in pipeline tariffs by PNGRB has been putting additional brssure on the profitability of Your Company. The borrowing has increased substantially during brvious year due to large Capex in pipelines and petrochemical plants, resulting in increase in debrciation and interest expenses.

The petrochemical plant at Pata is operating brdominantly on RLNG due to decliningsupplies of domestic gas. As a result cost of production has gone up to an average of Rs.l,05,000/MTin2014-15fromRs.75,000/MTin 2013-14.

• Sales (Netof ED)

Sales (netof ED) decreased by 1% from Rs.57,245 crores during 2013-14 to Rs.56,569 crores in2014-15.

• Profit afterTax (PAT)

Profit after Tax has decreased by 31% from Rs.4,375 crores during 2013-14 toRs.3,039croresin2014-15.

• Earnings per Share (EPS)

In view of decrease in PAT, EPS has come down from Rs.34 as on 31st March, 2014 to Rs.24pershareason315,March, 2015.

• Price Earning (PE) Ratio

Price Earnings ratio of the Company was 16 as on 31st March, 2015 and was 11 as on 31st March, 2014, indicating investors' sustained confidence in the long-term growth of your Company

• Shareholders'Funds

The Reserves and Surplus increased to Rs.27,851 Crores at the end of the current financial year as compared to Rs.25,804 Crores in the corresponding brvious year. As on 31st March 2015, the Net Worth of the Company stood at Rs.28,888 Crores, as compared to Rs.26,858 Crores as on 315,March2014.

• Debtand Interest

The Debt-Equity ratio is at a very comfortable position of O.33 as on 315' March, 2015. The Debt Service Coverage Ratio was at 3 times at the year end.

• Ratio Analysis

Return to Net Worth (PAT/Net Worth) for the Company as on 315' March2015 stood at 10.52%. Return on Capital Employed (PBIT/Capital Employed) wasll.07%ason315,March2015.

• Project Profit Maximization (Sanchay)

Your Company is gearing for challenges to sustain profitability which may be under stress in the next few years due to external factors like volatility in gas business, fall in domestic gas volumes, decrease in prices of petrochemical etc. Hence, a combrhensive initiative has been launched across all the business segments of your Company to optimize existing ? resources, improve operational and process efficiencies, reduce costs  and maximize profitability. Project Sanchay, as it is called, has identified 5 profit maximization levers:

i. Gassourcing,sales and marketing

ii. Plants operations (Petrochemical and LPG)

iii. Pipeline Operations

iv. Petrochemical and LHC marketing and sales

v. Optimizing finance, HR and C&P process and costs

5. RISKS, CHALLENGES AND MITIGATION

• Sharing of Under Recoveries

The Government of India (Gol) is a major shareholder of your Company. The decisions on sharing of under recoveries on petroleum products given as a discount to Oil Marketing Companies (OMCs) are governed by the Gol.

As per the Gol's directives, in order to make sensitive petroleum products affordable to domestic consumers, your Company has shared the under-recovery of OMCs since 2003-04, aggregating to an amount of Rs.19,419 Crores. During the year under review, your Company has provided fl.OOO Crores (brvious year: fl.goo Crores) on account of sharing under-recovery of OMCs. Your Company has been requesting Mo P& NG from time to time for exemption from the burden of sharing the under-recoveries claimed by the OMCs.

• Regulatory Framework

Since 1st October, 2007, the Petroleum & Natural Gas Regulatory Board (PNGRB) has been established by the Central Government for carrying out the various provisions of the PNGRB Act, 2006. The PNGRB Act provides a legal framework for regulating the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas, but excluding the activities of production of crude oil and natural gas, so as to protect the interests of consumers and entities engaged in these activities.

The main functions of PNGRB include, inter-alia, (a) granting authorizations for laying, building, operating or expanding new pipelines as common carriers or contract carriers and for laying, building, operating or expanding new city gas distribution networks (CGD networks), (b) declaring existing pipelines and CGD networks as common carriers or contract carriers, (c) regulating access to common carriers or contract carriers (d) regulating transportation rates of common carriers or contract carriers and (e) to perform such other functions as may be entrusted to it by the Central Government to carry out the provisions of this Act.

During the financial year 2014-15, PNGRB has notified Regulations/ Amendments in respect of Natural Gas Pipelines. Regulations/ Amendments in respect of CGD networks and has also issued various authorizations/ orders/decisions in respect of Natural Gas Pipelines, Petroleum Product Pipelines and CGD networks. The details of the said regulations/ amendments/authorizations/orders/decisions are available in the official web-site of PNGRB (www.pngrb.gov.in) and have varying implications on respective entities/business activities.

The regulations/amendments/authorizations/orders/decisions of PNGRB are appealable before PNGRB Bench/Appellate Tribunal/Courts and accordingly, some of them pertaining to your Company are also under various stages of appeals.

The timing and content of any final changes in regulations made by the

Regulator is not in your Company's control. However, regular participation in public consultation exercises conducted by the Regulatory Board and making submissions to the Regulator in writing helps us to anticipate or to minimize our risks associated with any sudden or unforeseen changes in regulations.

• Natural Gas Prices

Your Company is currently marketing natural gas procured from domestic as well as international sources.

Till October 2014, the price of domestic natural gas was either approved by GOI or as per the provisions of Production Sharing Contracts (PSCs). The GOI, vide its order dated October 25, 2014, has notified the New Domestic Natural Gas Pricing Guidelines, 2014. As per the notification, w.e.f. November 1,2014, gas prices shall be determined as per the specific formula which is essentially the twelve month average price of natural gas traded in the major hubs worldwide. Prices will be valid for six months.The first price notified under New Domestic Natural Gas Pricing Guidelines, 2014 was effective from November 1,2014 and subsequent revisions shall take place every six month startingfrom April 1,2015. Petroleum Planning and Analysis Cell (PPAC) has been appointed as the nodal agency to calculate and publish the price as specified in the formula.

The New Domestic Natural Gas Pricing Guidelines, 2014 are applicable uniformly to all sectors of the economy, nominated fields to ONGC and OIL, NELP blocks, Pre-NELP blocks that require Government approval as per PSC and CBM blocks, whereas these will not apply in case of small and isolated fields in nomination blocks which are covered under Pricing Guidelines of 2013, such contracts where prices have been fixed contractually for a certain period, till the end of such period, where PSC provides for specific formula and Pre-NELP blocks that do not require Government Approvalasper PSC.

The selling price of such domestic natural gas is equal to the purchase price. Your Company earns marketing margin on the sale of domestic natural gas.

In addition to above, your Company purchases imported natural gas mainly from Petronet LNG Limited (PLL) at Dahej, Gujarat. The purchase price and the selling price of such Natural Gas (RLNG) is based on international crude price. Further, it also directly imports natural gas through cryogenic ships (LNG) and gets it regasified either at PLL's regasification terminal at Dahej, Gujarat or at Ratnagiri Gas and Power Private Limited (RGPPL) regasification terminal at Dabhol, Maharashtra. Such LNG import is either under a medium term agreement ranging up to three years or under spot cargo purchases. Under medium term import, the selling price is based on the purchase price. However, under spot cargo imports the selling price is dependent upon demand and supply scenario within the country and customer affordability. The import of spot cargo is made based on thorough assessment of the affordability of the customer, availability of naturalgas in international aswell as domestic market and customer's natural gas requirement.

• Polymer, LPG and other LHC

Your Company is also marketing own produced products like Petrochemical, LPG and other LHC products.The prices of these products are influenced and determined by global and national demand supply position and vary from time to time.

• Foreign Exchange Fluctuation Risk

Your Company is exposed to the foreign exchange markets by way of  imports of capital goods for various new projects, import for operation & maintenance, loans for meeting the capex requirement and investments abroad. This has increased your Company's exposure to the foreign exchange variation and interest rate risk.

To manage the forex exposure, your Company has an approved Forex & Interest Rate Risk Management policy in line with the changing market dynamics.The policy is reviewed on a continuous basis.

• Natural or Man-made Calamity Risk

Various risks are associated with gas transmission and distribution like blowout of pipelines, earthquake, tsunami, terrorist activities, etc.

These risks are being mitigated right from the designing stage of these projects. However, such natural or man-made risks are emergent events and cannot be totally eliminated. If such an event occurs, it will incur significant liabilities for the Company.

• Risk Management Framework

Your Company has an approved Risk Management Policy & Procedure to protect and add value to the organization and its stakeholders with the objective:

? to establish a risk intelligence framework for the organization;

? to establish ownership throughout the organization and embed risk management as an integral part of the business rather than a stand­alone function in the system;

? to help the decision makers of the organization explicitly take account of uncertainty, the nature of that uncertainty, and work towards a solutionto addressit;

? to ensure that all the current and expected risk exposures of the organization are identified, qualitatively and quantitatively evaluated, analyzed and appropriately managed;

? to enable compliance with the relevant legal and regulatory requirements and international norms, and

? to assure demonstrable achievement of objectives and improvement of financial stability of the  organization.

The risks are evaluated, quantified and prioritized and mitigation plans are reviewed and monitored atvariousstages. The Corporate Level Risk Steering Committee has been established to oversee the implementation of the Risk Management Policy and Procedures which are periodically reviewed and monitored by the Risk Management Committee, the Audit Committee and the Board.

Key Corporate Level Risks have been identified. Mitigation plans to control these risk are being ratified/uprated/rerated from time to time. The key risks are related to natural gas sourcing. Logistics & Port facilities, natural gas demand sensitivity and market affordability, and polymer marketability. Regulatory framework, E&P,  forex exposure, force majeure in project execution etc. are deliberated in various Committees asstated above.

6. INVESTOR RELATIONS AND ENGAGEMENT

The objectives of Company's investor relations activities are to develop a long-term relationship of trust with stakeholders by fulfilling its responsibilities not only to shareholders but also to all other stakeholders including investors and analysts, through fair disclosure of information, and also to obtain their confidence and esteem through bilateral communication. In order to pursue these objectives at all times, your Company continuously 1 discloses necessary information and conducts various investor relations activities. The investor brsentation(s) are placed on the website of your Company and the stock exchanges are also informed.

One of the highlight of 2014 calendar year is the Investor Relation Survey conducted by the Company with respondents from Analyst and Investor community. This initiative has been apbrciated and commended by analyst community as a very proactive approach to investor relations management.

In 2014, to pursue the objective of effective communication with investors, your Company organized Analyst Meet for 2013-14 and Conference Call immediately after announcement of the  financial results for Hi 2014-15 and 03 2014-15. Besides organizing such meets and arranging regular meetings with investors, your Company also attended 4 domestic investor conferences organized by top brokerage houses of the country and 1 international meet in Hong-Kong and Singapore. All these meetings/ conferences were attended by Top Management/Senior Executives from Finance, Marketing, Business Development and Projects in addition to executives from site offices.

As per requirement of SEBI (Prohibition of InsiderTrading) Regulations, 2015, your Company's Board has approved:

• Code of Conduct to Regulate, Monitor and Report Trading by Insiders (InsiderTrading Code) and

• Code of Fair Disclosure and Conduct- Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information (Principles of fair Disclosure)

These are available on the website of the  Company.

Your Company will continue with its endeavor to provide world class investor relations services in disseminating information to Investors & Analysts at right time and from the right people. In view of the above. Investor Zone section of corporate website has been reviewed and made more informative and investor friendly. Your Company believes that it must provide to capital market participants (including shareholders, investors, and securities analysts) accurate information that meets their requirements.

7. HUMAN RESOURCE AND INDUSTRIAL RELATIONS

Your Company looks at diversity from various dimensions, viz., gender, religion, caste and community. It gives equal opportunity to all the citizens in regard to employment & career opportunities within the organization. As a result, the employee composition is a heterogeneous mix, comprising people from almost all the regions of the country and sections of society.

The Industrial/Employee relations climate remained congenial and constructive. There were no Man Days or Man Hours lost on account of any sort of industrial conflict/unrest.

In an endeavor to meet the ever changing business requirements and to maintain sustainable competitive advantage, your Company has been continuously aligning its Corporate HR Strategy in alignment with the Organizational Strategy.

Your Company is making a concerted effort to attract, acquire and deploy the best human capital and keep them motivated and engaged. Your Company has been constantly focusing on identifying and bridging the skill gaps of its talent pool. Your Company constantly reviews its HR processes & policies to benchmark them vis-a-vis the best process & policies in the industry. During the year, your Company undertook the review of HR policies with respect to employee's compensation, welfare, recruitment, and general terms and conditions of service. Conduct Discipline & Appeal Rules and Whistle Blower Policy. Further, the provisions of Lokpal and Lokayukt as Act, 2013 were also implemented.

8. ENVIRONMENT PROTECTION AND CONSERVATION/ RENEWABLE ENERGY DEVELOPMENTS/FOREIGN EXCHANGE CONSERVATION

Your Company is committed to Environment Protection and always strives for continuous development of the communities in which it operates. Health, Safety and Environment are embedded in "Core Organization Values" of your Company to promote highest level of safety in our operations, health of our employees and a clean environment. Your Company has an elaborate and combrhensive Environment Management System in place.

Your Company has adopted various measures across business lines for environment protection and its conservation. Since its inception, your Company has been guided by the objective to be a caring and responsible corporate citizen with the essence of sustainability ingrained in its Vision and Mission statement. Your Company's business philosophy stresses on fostering responsible growth that is sustainable and inclusive for the economy, the stakeholders, the community and the environment. Your Company has strived to align with the principle of triple bottom line by being a committed corporate citizen balancing the growing energy demands for its customers, creating value for all stakeholders and ensuring its responsibility towards environment.

Your Company owns many interstate as well as regional natural gas pipeline networks of more than 11,000 km across India. Through this network it supplies natural gas to many industries in the power. Fertilizers Sugar, Paper and Steel sectors helping them in the cause of environment protection. Adequate supply of affordable and clean energy is a br-requisite for sustainable growth. Natural gas has emerged as most benign fuel in this regard. Natural Gas is a new age fuel. Having the lowest carbon to hydrogen ratio, hence it burns completely, makingit the cleanest of fossil fuels.

Natural gas satisfies most of the requirements from fuels in a modern day industrial society, being efficient, non-polluting and relatively economical, natural gas is used in power utilities, fertilizer industry, industrial sectors, domestic & commercial uses, automotive industry and petrochemical industry as non-polluting fuel and feed stock. Pipeline transportation of gas offers a safe, economic and environmentally sound alternative to most other modes of energy transport. LPG transmitted through pipelines is source of clean fuel to millions of houses. The pipelines have helped the cause of environment to a great extent by reducing the tanker traffic on roads creating better environment and promoting higher safety.

• Water and Wastewater Management

Your Company's operations do not involve complex chemical reactions generating difficult to treat wastewaters. Physical separation of heavier hydrocarbons from natural gas is achieved by the cooling and condensation technique. The raw material used for recovery of LPG and Propane is clean and eco-friendly natural gas which is received through pipe line. After recovery, it is transported to downstream customers through pipeline. The only process effluent at most of the installations are floor wash, cooling water blowdown and sewage water.

The gas processing plants have Effluent Treatment Plant for necessary treatment of effluent water generated in the process. No effluent water is discharged outside the brmises. The treated effluent water is recycled and used in-house for horticulture purposes inside the plant and township brmises. The treated wastewater is of the highest quality and ensures conservation of this brcious resource.

Water is a brcious natural resource and hence its consumption is closely monitored and controlled. Technologies have been adopted to reduce the wastewater generation and treat whatever is generated. Thus, special care is take to maximize reuse and recycle. Discharge at all locations is compliant to respective state pollution control board norms.

• Air Quality Management

In line with its commitment towards sustainable development, your Company has given topmost priority to environmental considerations throughout the various phases of the project such as technology selection, process design and project execution.

All the plants of your Company namely the Gas Processing Unit, the Gas Cracking Unit, the High Density Polyethylene Unit and the Linear Low Density Polyethylene Unit(HDPE and LLDP Ejarestate of the art and from world renowned process licensors.

Your Company uses one of the cleanest fuels available. which happens to be its raw material as well as feedstock i.e. Sulphur free natural gas. Since your Company uses natural gas for its feedstock as well as fuel requirements, the level of pollutants is consistently maintained much below the national stipulated norms.

All the boiler and furnace stacks are also equipped with on-line analyzers for monitoring stack air quality on continuous basis. Adequate stacks height has been provided for effective dispersion of pollutants. Low NOx burners are used in all the furnaces. Loading facilities are provided with vapour return circuits. Gas detectors have been installed to ensure quick detection of any gas leak.

• Solid Waste Management

Your Company manages its waste in the best possible ways. Its first priority is to ensure minimum generation of waste. If the generation of any waste is inevitable , it focuses on the brvention of harm to the environment, possible onsite treatment and disposal based on the type of waste. Your Company also focusses on segregation of hazardous wastes from non-hazardous wastes. In your Company's process plants, hazardous solid waste is stored and disposed-off as per the best available environment practices. The solid wastes are collected, stored and  handled, in a manner which has no detrimental effect on the ground water and the environment.

• Green Belt

All installations of your Company carry out extensive affore station in their respective sites and maintain at least one third of the area as Green belt.

Your Company's single largest land holding, the Petrochemical unit at Pata, has every significant greenbelt having more than 5 lakh plants. Varieties of butterflies, peacocks, turtles, ducks, hares, reptiles and other rare species have made this site as their natural habitat. The migratory birds visiting this site points towards the humble contribution made by this installation tothe cause of environment protection.

• Environment Monitoring

Your Company monitors environmental parameters to assess the environmental quality on regular basis through in-house as well as by Independent third party agencies. All the latest and sophisticated instruments are used for monitoring of environmental quality. The monitoring of environmental quality is done regularly and reports are sent to respective State Pollution Control Boards. The water and waste water samples are also analyzed at the in-house laboratory as well as external laboratories on regular basis.

Some of the environmental initiatives which your Company has embarked upon recently are as below:

• HSE Signature: Your Company has formulated its HSE Signature which was launched on Januaryl4,2015.The HSE Signature ofyour Company is:"Plantation of a Tree, Undergoing one Safety Training and Measurement of Body Mass Index (BMI) for good health each year by every employee"lt has been chosen with respect to each of the element of HSE i.e. Health, Safety and Environment.

? Health: Measurement of Body Mass Index (BMI) of each employee to monitor and improve health.

? Safety: Undergoing a focused Safety Training to improve safety perception and enhance skill building to create a safe work environment.

? Environment: Plantation of a tree each year by every employee to contribute towards greener environment

• Your Company has undertaken Global Methane Initiative (GMI) program at Vijaipur, Jhabua and Hazira through the signing of a MoU with the United States Environment Protection Agency (US-EPA). Your Company has become a partner in the Natural Gas STAR Program so as to carry out study regarding fugitive and vented Methane emissions. The study has been taken up for Vijaipur, Hazira and Jhabua facilities by US EPA. Your Company's Vijaipur facility has been able to reduce 2.89 MMSCM (million m3)/year methane emission over its baseline of 2010-11 which is equivalent to reducing 41,225 ton of C02e. The recurring fugitive emission due to Combrssor wet seal degassing vents are to be addressed by a Seal Gas Recovery Project that will recover the fugitive gas emission and cycle it back to the suction of the combrssor thereby eliminating its discharge into atmosphere.

• Your Company has set up Membrane Bio Reactor (MBR) based Sewage Treatment Plant (STP) in the GAIL Gaon Township. Treated water from MBR is suitable for horticulture works like irrigation of lawns etc. The efficient sewage treatment process, ensures an odorless and clean environment. Improved quality of treated water also adds to the hygiene level. The benefit of having a MBR based STP is that the entire effluent is useable and there is zero wastage of sewage water. The irrigation of lawns and green belts which was earlier done by bore wells is being brvented, saving brcious groundwater and improving the waterfoot print.

• Your Company has embarked upon conserving water by implementing Rainwater Harvesting measures. At GAIL Vijaipur, there has been construction of structures (check dam) and lagoons to assist water conservation and enhance the ground water table by making rain water harvesting its in complexes and township.

• Your Company recovers waste heat from the exhaust of Gas Turbine Combrssor (GTC) at Vaghodia through Waste Heat Recovery Steam Generation system (WHRSG). This project was implemented to supply steam to M/s. Apollo Tyres. The Heat Recovery Steam Generation System utilizes the flue gas energy from the exhaust gases from the gas turbines which drive their respective combrssors in open cycle for steam generation. This reduces the flue gas current temperature of 450°C going in open atmosphere to about 240°C , thus reducing thermal pollution as well as saving energy required for the steam generation.

• Your Company has installed an improved automated burner management system in hot oil heaters to replace the earlier inefficient burners with manual control at Vaghodia.The hot oil system is used for re-boiling of LHC in the distillation columns during the fractionation process for the recovery of LPG. The hot oil supplied in these re-boilers is heated in hot oil heater. The hot oil heater had conventional type of gas fired heater having pilot operated four natural draft burners. The new system has changed the  brsent furnace from natural draft to forced draft having proper control system for maintaining air to fuel ratio thus eliminating excess air as well as wastage of sensible heat loss. This retrofitting in hot oil heaters has improved the combustion efficiency, reducing the fuel gas consumption. Besides, it enhances operational safety. The reduction in fuel gas consumption is 12% which corresponds to energy saving of 2,957 MWH/annum.

9. CORPORATE SOCIAL RESPONSIBILITY

In alignment with the vision of your Company, the CSR initiatives strive to enhance value creation in the society and in the community in which it operates, through its services, conduct and initiatives, to promote sustained growth for the society and community. The Annual Report on CSR activities as per requirement of the  Companies Act, 2013 is forming part of the  Directors' Report.

10. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has developed Internal Control System in its various business processes/segments, commensurate with the size and nature of business.

Your Company has an in-house Internal Audit Department functionally reporting to Audit Committee (Sub-committee of Board), and administratively reporting to Chairman & Managing Director which is considered as a global best practice. The Internal Audit carries out risk-based audit covering various business processes/segments/functions of the Company as per the annual audit plan approved by Audit Committee. Further, the Internal Audit Department is ISO 9001 certified ensuringst and ardization of system and procedures.

The Internal Audit Department consists of professionally qualified executives from various disciplines who carry out audit of financial, commercial, technical and other business activities of your Company besides reviewing the adequacy of Internal Control Systems. It regularly appraises risk management in line with Board approved Internal Audit Charter/Manual which contains best global practices in the profession of Internal Auditing. The Internal Audit Department also has a system of apprising top management and the Audit Committee on status of compliance of significant internal audit issues from time to time.

The Company has in place adequate internal financial controls with reference to financial statements.

CAUTIONARY STATEMENT

Statements in the Directors' Report and Management Discussion A Analysis, describing the Company's objectives, projections and estimates, expectations, brdictions etc. may be "forward looking statements "within the meaning of the applicable laws and regulations. Forward looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Actual results, performances or achievements may vary materially from those exbrssed or implied, economic conditions, Government policies and other incidental factors such as litigation and industrial relation. Stakeholders are cautioned not to place undue conviction on the forward looking statements

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