GAIL Investors Not Pleased With Regulator's Hike in Gas Pipeline Tariffs

GAIL (India) Ltd investors were in for a rude shock after the tariff revision for its Hazira-Vijaipur-Jagdishpur (HVJ) pipeline came in much lower than expected.

After dropping over 10% on Thursday, GAIL shares extended losses for a second day, falling nearly 1% to Rs 313.65. Brokerages also cut their earnings estimates for the company. CLSA downgraded the stock to under perform and cut its target price to Rs 365 from Rs 420 citing the disappointing tariff revision for GAIL’s key pipeline.

“The levelised tariff for integrated HVJ is Rs 41.11 per mBtu on a GCV (gross calorific value) basis,” oil regulator Petroleum and Natural Gas Regulatory Board (PNGRB) said in its order. However, GAIL had sought to raise the tariff to Rs 97.04 per mBtu in HVJ, citing a capex spending of Rs 24,708 crore over the economic life of the pipeline lasting till 2035.

According to a report, GAIL had been charging Rs 25.46 per mBtu from those who have been the users of the pipeline since November 2008, and Rs 53.65 per mBtu for users enrolled after March 2010. The new tariff is though higher by 61.4% for old customers, but comes down 23.3% for new customers.

In 1997, GAIL had laid the HVJ pipeline to carry natural gas from western offshore fields to power and fertilizer plants right up to Uttar Pradesh. Later, it laid another Dahej-Vijaipur pipeline in 2004 to meet additional demand. This was called HVJ Upgradation line. Together, the two lines are known as HVJ Integrated pipeline.

While HVJ had a total carrying capacity of 57.30 million standard cubic meters per day (mmscmd), HVJ Upgradation had a capacity of 54 mmscmd.

GAIL, according to the order, sought a tariff of Rs 114.79 per mmBtu for HVJ, Rs 79.28 per mmBtu for HVJ Upgradation and Rs 97.04 for HVJ Integrated pipeline.

GAIL’s integrated pipeline network accounts for over 70% of the company’s gas transmission volume. The company’s net profit rose 9.92% to Rs 1,122.23 crore on a 21.6% rise in net sales to Rs 18,763.41 crore in the March quarter when compared with a year ago. GAIL is the largest state-owned natural gas processing and distribution company in India.