IGL, other gas utility stocks bleed on tariff cut order

IGL currently charges a network tariff of Rs 104.05 per MMBTU (million British thermal Units). In addition, it also levies compression charges at Rs 6.66 per kg for compressed natural gas (CNG). IGL has approached the Delhi High Court challenging the Constitutionality and legality of the powers of the Petroleum & Natural Gas Regulatory Board (PNGRB) to fix the tariff.

At a press conference today, Mr M. Ravindran, Managing Director, IGL, said: "No separate communication has been received as yet from PNGRB ... no opportunity for personal hearing given to IGL. IGL has approached the Delhi High Court." The company expected the hearing to be held in a day or two.

The company plans to effect changes in consumer tariff only after the court hearing.

Gas utility stocks took a beating after the Petroleum and Natural Gas Regulatory Board directed Indraprastha Gas Ltd to cut tariffs.

This was intended at reducing consumer prices.

The Indraprastha Gas stock fell 33 per cent to Rs 232 on the BSE on Tuesday.

At 2.49 p.m., GAIL (India) was down 3.5 per cent at Rs 350.40. Gujarat Gas was trading down 15.62 per cent at Rs 340. Petronet LNG fell 3.73 per cent at Rs 158.60 and Gujarat State Petronet was down 8.15 per cent at Rs 70.

Reacting to the news the GAIL (India) Chairman and Managing Director, Mr B.C. Tripathi, said: "This will have a negative impact on the industry. In an otherwise depressed scenario -- domestic gas availability is on the decline and its dependence on LNG growing -- CGD (City Gas Distribution) is the only category where the industry was looking at growth and expansion."

Terming the order as not practical to implement, he said, in this sector it is not possible to implement with retrospective effect. "In this business there are no fixed customers, so how does one assess. The order is highly disconnected from the ground reality and proves to be negative for all entities in the business. The role of PNGRB is to look at the larger market."

Indraprastha Gas told the regulator that it charged a network tariff of Rs 104.05 per MMBTU (million British thermal Units). In addition, it also levied compression charges at Rs. 6.66 per kg for compressed natural gas (CNG).

The tariff was very high compared to the extant PNGRB notified rates.

PNGRB had notified a network tariff of Rs 38.58 per MMBTU and a CNG compression charge of Rs 2.75 per kg from April 1, 2008.

Hence PNGRB directed Indraprastha Gas to reduce its selling prices and refund the difference in the two tariffs with immediate effect.

“The PNGRB tariff is less than half the current gross margin of Rs 8 per standard cubic metre made by Indraprastha,” said Mr Kishor Ostwal, CMD, CNI Research. “Profitability may decline by 50 per cent with similar impact on the stock price and a cut in earnings per share by Rs 10. However, the final impact will depend upon what marketing margin the company is able to charge,” he added.

IGL was set up to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors. It is backed by – GAIL (India) Ltd and Bharat Petroleum Corporation Ltd. The transport sector uses natural gas as compressed natural gas, the domestic and commercial sectors use it as piped natural gas and R-LNG is being supplied to industrial establishments.

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