Financial Daily from THE HINDU group of publications
Thursday, Nov 24, 2005
Industry & Economy - Petroleum
Tariff panel moots 28 pc cut in GAIL gas transmission rates
New Delhi , Nov. 23
THE Tariff Commission, which was tasked to review the gas transmission tariff of GAIL (India) Ltd, is understood to have suggested a 28 per cent reduction in charges.
The Government had decided to review GAIL's tariff after the Fertiliser Ministry, on behalf of the fertiliser industry, complained of high transmission costs.
The Commission, in its final recommendations recently submitted to the Fertiliser and Petroleum Ministries, has examined two scenarios a high case tariff of a little over Rs 820 per thousand standard cubic metre (SCM) of gas moved on its Hazira-Vijaipur-Jagdishpur (HVJ) pipeline, down from the current tariff of Rs 1,150 per thousand SCM. The low case corresponds to a tariff less than Rs 650 per thousand SCM.
The Commission has also suggested a marginal reduction in the marketing margins charged by GAIL. Marketing of gas constitutes a significant 65 per cent of revenues, but it rakes in a measly eight per cent of GAIL's profits.
GAIL's current tariff of Rs 1,150 per thousand SCM, or roughly 60 cents per million British thermal unit (mmbtu), over a 20-year period is arrived at after `levelising' the tariff uniformly over a 20-year period. Experts say that if the Government accepts the Commission's recommendation to slash tariff then it may lead to GAIL witnessing a dip in its profitability. Transmission business brings in 16.5 per cent of GAIL's revenues and 42.5 per cent of its net profitability.
When contacted by Business Line, Mr Proshanto Banerjee, CMD, GAIL, said, "If an integrated transmission charge for gas has been recommended in respect of HVJ and Dahej-Vijaipur Pipe Line (DVPL), then as per our understanding the recommendations would lead to a lower tariff to some extent for HVJ and to some extent a higher tariff for the DVPL system. However, the final outcome would depend upon the decision to be taken by the Group of Ministers and only then the financial implications for GAIL and our customers can be worked out."
"The recommendations of the Tariff Commission would not only allow adoption of a simpler, transparent and flexible methodology, but also would pave way for the creation of a uniform tariff computation mechanism, which would become a benchmark for all the pipeline systems in the country," he said.
Based on what the company has gathered, the Tariff Commission has recommended Cost of Services methodology for computation of pipeline tariffs, in place of the earlier Discounted Cash Flow methodology, which is a positive signal, he said. Now, there would be an integrated tariff for the HVJ and DVPL systems of GAIL, in place of the current individual tariffs, he added.
The company was of the view that once these important principles are accepted by the Government, it would equally apply to all the gas transportation companies, namely, Gujarat State Petronet Ltd, Gujarat Gas Company Ltd, Assam Gas Company Ltd, Gas Transportation and Infrastructure Company Ltd of Reliance, and, indeed would also apply to all the oil pipeline players such as IOC, HPCL, BPCL for their crude and product pipelines.
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