Indraprastha Gas may hike prices marginally to make up for rise in cost

The Petroleum and Natural Gas Regulatory Board recently notified access codes for new city gas distributors, a move that is expected to simplify tariffs and attract investment in the sector

Indraprastha Gas (IGL), the country’s largest city gas distribution (CGD) company, said the oil and gas regulator’s decision to go for a unified tariff structure for pipelines is expected to increase the firm's input cost by 5-6 per cent and some of it will be passed on to consumers.

A K Jana, managing director of IGL, said since the impact on IGL is minimal, the hike in retail price will also be marginal as the transportation tariff for national pipelines constitutes only one-eighth of the final consumer price.

“We will face impact in some geographical areas, but that would be negligible. This will definitely lead to an increase in prices as input costs will rise, because our areas are not in zone 1. The rise in input cost will be around 5-6 per cent,” Jana told Business Standard.

The Petroleum and Natural Gas Regulatory Board (PNGRB) recently notified access codes for new city gas distributors, a move that is expected to simplify tariffs and attract investment in the sector.

Currently, the tariff is charged based on the distance covered by the pipeline. However, with the new regulation, there will be two zones — zone 1 that is within 300 kilometres and another zone beyond that range. The tariff for the second and third zones will be 100 per cent, while for zone 1, it will be 40 per cent of the other zones’.

The unified tariff structure is part of the government’s strategy to have a single gas market and increase the share of natural gas to 15 per cent of the energy basket, from the current 6 per cent. According to various reports, the new tariff structure will lead to a 20-30 per cent rise in transportation charges at source, while in the hinterland charges will reduce. “Whoever has geographical areas in zone 1 is going to be benefited while those under zone 2 and 3 are going to face problems,” said an industry insider.

The rules on roll-out of open market access in the sector also give some protection to the existing players.
 

On November 26, the PNGRB released a regulation for providing access to third-party shippers on CGD networks. “The regulations have kept most aspects of the access code unchanged, except clarifying further on CNG stations run by OMCs or their dealers/franchises. The PNGRB has clarified the existing CNG stations of franchise/dealers (including OMCs’ CNG/LCNG stations) will not be considered as third-party shippers for the purpose of allowing access,” said Ankit Patel, vice-president and co-head, corporate ratings, ICRA. 

While any additional capacity expansion at existing stations will also not qualify as third party, setting up of CNG compressor at a new liquid fuel pump will be considered third party. Major CGD players — IGL and Mahanagar Gas — have more than 50 per cent of their CNG stations on OMC networks. Hence, this regulation significantly lessens the risk of third-party competition and margin contraction for them, he said.

“The risk of third-party marketing would continue to remain for large industrial PNG markets catered to by players like Gujarat Gas in Gujarat given the price-sensitive nature of the large market as well the access to multiple gas sources in the vicinity. Nonetheless, the impact would be limited as a maximum of 20 per cent of the capacity can shift to third-party in a worst-case scenario,” Patel added.