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Another retrospective move by the government has put gas companies on the back-foot

A directive from the Petrol and Natural Gas Regulatory Board has ordered Indraprastha Gas to refund the excess charges which might erode its net-worth completely

A directive from the Petrol and Natural Gas Regulatory Board (PNGRB) to Indraprastha Gas (IGL) has ordered the company to refund the network tariff and compression charge, with retrospective effect from 1 April 2008. This draconian order has sent the company’s stock price crashing. The stock which opened at Rs372 yesterday (9th April) had crashed 7%, and is currently Rs229.80, down 33.66%. In a first of its kind, this move has prompted fears that the regulator will impose a similar sort of charge or regulation on other gas utilities. Gujarat State Petronet has fallen from yesterday’s opening price of Rs78 to Rs70.90, down 9.10%. Similarly, Petronet LNG has fallen from Rs172 to Rs159.95, a 7% fall.

The tariff order said “Accordingly, the Network Tariff and the Compression Charge for CNG in respect of the Delhi CGD Network of IGL shall be Rs38.58 per mmBtu (million metric British thermal units) and Rs2.75 per kg, respectively, with effect from 1 April 2008.” This is drastically lower than the one proposed by IGL. Earlier, IGL had quoted network tariff of Rs104.05 per mmBtu and compression charge of Rs6.66 per kg.

The order further said, “IGL shall recover the Network Tariff and Compression Charge for CNG separately through an invoice without any premium or discount on a non-discriminatory basis. Further, in conformity with the decision conveyed vide letter dated 23.5.2011 mentioned in para 2.3 above, the difference between the Network Tariff and Compression Charge for CNG submitted by IGL and that determined by the board as given in the table above would be reflected through appropriate reduction in the selling prices from the date of issuance of this Order.” A 62.92% cut in Network Tariff and a 58.71% slash in compression charge would mean cheaper gas for consumers in the capital. According to an Edelweiss research note, consumers will pay Rs3.53 per scm (standard cubic metres) as opposed to Rs8.95 per scm.

“In case the PNGRB order is followed by cutting consumer prices by Rs5.42 per scm, IGL will report a loss. Assuming that consumers are refunded excess charges at Rs5 per scm, IGL’s FY12E net worth of Rs1200 crore stands wiped out”, according to a 9 April 2012 report by Edelweiss. Similarly, according to a HSBC research note dated 10th April, the tariff refund might cost the company as much as Rs1,600 crore. The PNGRB move has instilled fears that more such moves could be in the offing, especially towards other gas utilities. In a country that has an acute gas shortage and a huge fuel and gas subsidy, this move has only added more pressure on gas companies, particularly IGL, to deliver and function, to a point that they may not be economically viable to function at all.

In a similar move, the PNGRB had earlier ordered Gas Authority of India (GAIL) to cut tariffs for the Vizag-Secunderabad LPG pipeline, retroactively from 27 December 2010. A total of 21 tariffs were cut and imposed on GAIL, with effect from 2 April 2012. The order said, “As per proviso to Regulation 4 of the PNGRB Regulations, 2010 the petroleum and petroleum products pipeline shall be applicable as a transitional measure for a period of two years or such earlier time as the board may decide for valid reasons to be given in writing. Accordingly, the pipeline transportation tariff as given above would remain frozen and shall not be revised during the transition period unless advised by the board”. So far, at time of writing this piece, GAIL has fallen from Rs376 to Rs352, a 6.38% decline.  

The government earlier had amended its Income Tax laws with retrospective effect, which will have an adverse effect on foreign investments in India (Retrospective amendment to taxation: Will foreign investors be scared off?). It has also very strangely taxed software and satellite channels at a period when both were hardly exported (Taxing software & satellite channel income of the years when there was no satellite and hardly any software exported!).

If such trends adopted by the government are to be believed, then we can expect many more such retrospective orders in the future which will have an adverse effect on the economy.


PFRDA in talks with govt for more incentives to fund managers

Fund managers get only 0.0009% of the funds managed by them as incentives

In a move to popularise the National Pension System (NPS) in the private sector, sector regulator PFRDA said it is in talks with the government to increase incentives for fund managers.

“We are struggling and fighting with the government to increase incentivisation amount for pension fund managers,” Pension Fund Regulatory and Development Authority (PFRDA) chairman Yogesh Agarwal said at a CII meet.

Fund managers get only 0.0009% of the funds managed by them as incentives.

NPS is a government-run retirement scheme for individuals, including those in the unorganised sector.

Introduced on 1 January 2004, it is mandatory for central government employees (except armed forces personnel) appointed on or after January 2004. The scheme was made available to all citizens on a voluntary basis from 1 May 2009.

LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions are among the different fund managers for NPS.

“What is not doing well is...the non-government sector of NPS. When it (NPS) was extended to private sector from 1 May 2009, they forgot that huge marketing effort is involved and somebody has to take the onus of marketing,” he said.

Agarwal, however, exuded confidence that the pension scheme would become popular in the private sector as well, once the marketing and distribution issues of the product are addressed.

NPS has been extended to all citizens of India with effect from 1 May 2009.

NPS was made compulsory for all new entrants to central government services, except the Armed forces, from 1 January 2004. Since then, most of the state governments have also notified similar pension systems for their new entrants.

The PFRDA is yet to get statutory powers as the Pension Bill for the purpose is still pending in Parliament.

The total corpus of the government employees under NPS as on December 2011 was Rs12,769 crore. The total average monthly subscription of government employees is around Rs500 crore.


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