Gas pipeline projects get a big boost

Finally, the regulatory rigmaroles in the gas space should be soon resolved—with positive ramifications for gas distribution and transmission companies

The gas regulatory board has got real teeth now that Section 16 of the PNGRB Act of 2006 has been notified with effect from 15th July. This is a big step towards resolving the regulatory rigmaroles in the gas space and will be positive for gas distribution and transmission companies. This will also push forward badly needed investments in this space.

PNGRB (the Petroleum and Natural Gas Regulatory Board) was formed in
October 2007 but it did not have the authority to issue distribution rights to companies retailing CNG for automobiles and piped cooking gas to households because for some peculiar reason, the Act was notified without Section 16 which gave PNGRB the right to call for bids. Despite this, PNGRB conducted two rounds of bidding for city gas distribution (CGD) rights. GAIL Gas, a wholly-owned subsidiary of GAIL India won the first round - it got five cities - while Bhagyanagar Gas, a 50:50 JV of GAIL and Hindustan Petroleum Corp got Kakinada. When PNGRB called for the second round of bidding for seven cities, including Ghaziabad, Allahabad and Chandigarh, Indraprastha Gas (IGL) challenged its right (in the Delhi High Court) to issue licenses without Section 16 being notified, and the court upheld the challenge. This caused the auction process to come to a grinding halt.

IGL objected mainly because it had already been given the mandate by the Environment Prevention & Control Authority, a central government entity, to establish a CGD network in Ghaziabad before the PNGRB Act. Not surprisingly, after the government authorised IGL to continue developing Ghaziabad, its share price ran up from Rs240 to Rs293 -it is close to an all-time high now.

It is possible that the two rounds that PNGRB has already conducted will get implicit approval and we might see more than 10 cities ready to set up gas distribution networks very soon. Earlier, the PNGRB apparently had plans to develop CGD network in 330 additional cities, by putting 8-10 cities up for auction each month over the next two to three years. With more than two years of sluggish activity, this pace seems ambitious. But who knows what the PNGRB can achieve now that its hands have been unshackled?

The fact is all gas stocks are likely to roll and pitch in the wake of PNGRB getting authority under Section 16. In the pyramid of beneficiaries, the gas distribution companies such as IGL and Gujarat Gas will be at the top. These would be followed by gas transmission companies such as GAIL and GSPL. At the third tier will be gas supply companies such as RIL and Petronet LNG.

Recently, following the rise in administered price of gas, IGL demonstrated its pricing power by passing on the full increase to customers without any drop in volume. Therefore, there is no doubt that demand for CNG is strong (it results in 50% savings on an average over diesel and petrol). With the cut in LPG subsidy recently, even PNG will be more attractive to users - earlier the advantage was only about 3%. IGL has a strong presence in Delhi and it will be fairly easy for the company to expand in the north. Gujarat Gas is spread over Ahmedabad, Surat, Bharuch, and Valsad. However, with the freeing of distribution rights, it will be able to bid for more cities in western India.

GAIL is the largest gas transmission and distribution company in India. Its arterial HBJ pipeline is the country's largest. It is spending Rs340 billion over 4-5 years on pipelines and an assured RoCE (Return on Capital Employed) on these investments reduces risks and also provides visibility, not to mention leads to upgrades in valuation. Fast-paced gas distribution licenses will undoubtedly benefit GAIL. It will also benefit directly by bidding for city gas distribution projects through its wholly-owned subsidiary GAIL Gas. GSPL, which has 1,573 km of gas pipeline in operation from Hazira-Vadodara-Ahmedabad-Kalol-Himmatnagar-Mehsana-Rajkot-Morbi-Anjar-Jamnagar, transports more than 35 MMSCMD of gas and has 450 km of gas pipeline under execution.

Both GAIL and GSPL have shown improvement in their volumes after the supply of RIL's gas began. With more cities ready to supply CNG, volume estimates for both GAIL and GSPL should be revised upwards. Gas suppliers such as RIL and Petronet LNG can also benefit, but it depends purely on their ability to ramp up supply to match demand and also in Petronet LNG's case, to supply at a reasonable price (since Petronet is a re-gasification company, its prices fluctuate with spot rates, even though it has long-term contracts with gas suppliers abroad). Brokers have been telling their institutional clients today that bidding for six pipelines (6,000km) which was postponed should now begin -in fact, they believe the process will kick-start and will be completed in the next few weeks.

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COMMENTS

senthil s

7 years ago

nothing

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Weekly Review: A short-term decline might be on the cards

The US market fell very sharply last week, which might drag down Indian markets as well

The market started the week with a sharp rise. However, the lower-than-expected quarterly performance of Infosys and weak global markets limited the gain in the later days of the week.

The BSE Sensex and the Nifty were up 1% each over the week. Major index gainers were realty and consumer durables and the major losers were PSU and oil & gas. The top five gainers in the BSE 30 stocks were DLF, Tata Motors, Tata Consultancy Services, Jaiprakash Associates and ICICI Bank. Top losers were Bharti Airtel, Maruti Suzuki India, Reliance Communications, Infosys Technologies and Mahindra & Mahindra. 

Industrial output, as measured by the Index of Industrial Production (IIP), in May, was up at a slower-than-expected 11.5% from a year earlier, government data showed on Monday. Manufacturing output rose an annual 12.3%, the statistics office said. Mining output was up 8.7% and power generation rose 6.4%. Production of capital goods rose 34.3% year-on-year after an annual rise of 72.8% in April 2010, while consumer durables output grew 23.7%, down from a 37% rise in the previous month. Analysts opine that IIP for the second half of the calendar year 2010 will slow down to 6%-9% and end the fiscal 2010-11 with an average growth of around 9%.

The steel ministry wants a ban on iron exports as they are non-renewable. India produced about 230 million tonnes (MT) of iron ore in the last fiscal, of which around 106MT were exported, mainly to China. This was announced by the ministry after the Karnataka government wrote a letter for banning iron ore exports.

The Reserve Bank of India (RBI) is likely to soon announce a sunset clause with a deadline of 30 June 2011 for all loans in the erstwhile benchmark prime lending rate (BPLR) system to migrate to the new base-rate model.

The advancement of the monsoon has increased the sown area of major kharif crops, including paddy and coarse cereals. As per official data, paddy sowing picked up in the past one week with acreage going up to 72.3 lakh hectares till 9th July, which is 3.6 lakh hectares more than the same period last year. Acreage of coarse cereals increased to 58.2 lakh hectares, 5 lakh hectares more than the year-ago period.

The government has set up a committee headed by Reserve Bank of India (RBI) deputy governor Shyamala Gopinath to review the structure of the National Small Savings Fund (NSSF). The panel will review the existing terms of loans extended from the NSSF to the Centre and States and recommend the changes required in the arrangement of lending to the net collection of small savings to the Centre and States. 

Singapore's economy grew at a 26% annual pace in the second quarter after a record surge in the previous three months, spurring the nation's currency. Growth was revised to 45.9% for the first quarter, the fastest since records began in 1975, the trade ministry said.

Back home, finance minister Pranab Mukherjee said that inflation would come down to 5%-6% by the year end. Wholesale price index (WPI) based inflation inched higher to 10.55% in June, owing to the pass-through effect of the hike in prices of petroleum products announced on 25th June. However, the double-digit inflation in June could be partly attributed to a low base in the year-ago period when inflation was at -1.01%, meaning that even a small increase now would seem large.

Meanwhile, annual food inflation was up to 12.81% for the week ended 3rd July while fuel inflation was up 14.27%. In the previous week, food inflation was at 12.63% and fuel inflation was at 18.02%. While vegetable prices fell by 5.70% year-on-year, costlier pulses and cereals kept food inflation higher.

China on Thursday reported a slowdown in second-quarter economic growth. Gross domestic product (GDP) grew 10.3% over the same period a year earlier, slowing from the 11.9% annual growth recorded in the first quarter.

The Empowered Group of Ministers (EGoM) on food, which is expected to meet next week, will decide on considering the imposition of import duty on wheat and partial lifting of the two-year ban on export of non-basmati rice.

Cement prices are likely to soften on impending elections in the east and the end of Commonwealth Games-driven demand in the north. Presently, major impact has been witnessed in the southern region, due to huge capacities commissioned and lack of demand.

Stock market regulator Securities and Exchange Board of India (SEBI) on Thursday allowed physical settlement of both stock options and stock futures. At present only cash settlement of derivatives is allowed. It said that stock exchanges will also have flexibility to offer a combination of cash settlement for stock options and physical settlement for stock or physical settlement for stock options and cash settlement for stock futures.

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COMMENTS

rajesh

7 years ago

Pls look into the manipulation in brazen minal engineering
the promoters hadbeen earlier banned for 3 years by sebifor manipulatingtheir shareprice
3 years later after thestock ban theyhave stareted DOING EXACTLY THE SAME ANTCIS that got them banned and have ramped uptheprice from 8 odd rs to 100

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