Both Indraprastha Gas Ltd in Delhi and Mahanagar Gas Ltd in Mumbai have so far remained tight-lipped about passing on the increase in natural gas prices to consumers
The government today hinted that companies retailing compressed natural gas (CNG) and piped natural gas (PNG) in metros may not pass on the entire impact of the over two-fold hike in natural gas prices to consumers.
Rates of CNG sold to automobiles in Delhi and Mumbai will have to be raised by about Rs6 per kg, while piped gas for households would have to be hiked by about Rs4 per cubic metre because of the government's decision to raise input gas prices to Rs7.5 per cubic metre.
"We sincerely hope that passing on the entire burden (of increased input cost) may not be necessary for companies retailing CNG and PNG to automobiles and households in Delhi and Mumbai," oil secretary S Sundareshan said.
Indraprastha Gas Ltd (IGL) in Delhi and Mahanagar Gas Ltd (MGL) in Mumbai are the only city gas companies in the country that buy government-controlled gas, called APM gas, the price of which was raised yesterday.
"These companies are majority owned by oil PSUs and the government is the largest shareholder in these oil PSUs. So we hope the companies will take a considered view," he said.
Both IGL and MGL have so far remained tight-lipped about passing on the increase in natural gas prices to consumers.
The Cabinet yesterday hiked the price of gas sold to power, fertiliser and city gas projects from Rs 3,200 per thousand cubic metres ($1.79 per million British thermal unit) to Rs 6,818 per thousand cubic metres ($3.818 per mmBtu). After adding royalty, the price for user industries would be Rs7,500 per thousand cubic metres (Rs7.5 per cubic metre) or $4.2 per mmBtu, at par with the rate at which Reliance Industries sells gas from its KG basin fields.
He said the decision would come into effect once it is notified in the next few days. It would also lead to a rise in fertiliser production costs and power generation tariffs.
Fertiliser prices will not be increased, as the government subsidises the sector. But the decision would result in the fertiliser subsidy rising by Rs3,500 crore.
"The government stands to gain (in royalty and taxes) an amount larger than this subsidy payout," the Secretary said.
Mr Sundareshan said the increase in power tariffs would be marginal, as only 11% of the total electricity generated in the country was from gas-based power projects and of these, only one-third use APM gas. CNG in Delhi currently costs Rs21.90 per kg. State-owned ONGC and OIL, which produce APM gas, would gain about Rs 5,000 crore and Rs 700 crore in revenues because of the gas price increase.
State gas utility GAIL India, which has been allowed to charge Rs200 per thousand cubic metres or 11.2 cents per mmBtu as marketing margin would gain Rs200 crore in revenues annually, he said.
The hike in APM gas prices will not only increase your electricity, transportation and piped gas bills, but may also lead to deregulation of auto fuel prices
The Union Cabinet has hiked administered pricing mechanism (APM) gas prices to $4.2 per million metric British thermal unit (mmBtu) from $1.9 per mmBtu (a rise of 133%), effective from April 2010. Although the industry and analysts were anticipating the move, everyone was surprised by the quantum of the hike. They believe that the hike in APM gas prices would be followed by deregulation of auto fuel prices. This may happen as early as the first week of June.
"While an APM gas price hike was on the cards, the quantum (of the hike) has taken us by surprise. We were expecting a gas price increase of 30% and 20% in FY11E and FY12E respectively. The increase, however, is in line with the finance ministry's stance of bringing APM gas price in parity with KG gas price at one go," said Ambit Capital Pvt Ltd, in a note.
The APM was created after the government nationalised the international oil majors—Caltex, Esso and Burmah Shell—in the early 1970s. For ONGC, out of its total production, about 97% is APM and 3% is non-APM while in case of OIL, out of its total production, around 88% is APM and 12% is non-APM.
While the move to increase APM gas prices would be positive for State-run oil companies like ONGC Ltd, GAIL Ltd and OIL Ltd, it may impact city gas distribution companies such as Mahanagar Gas Ltd, Indraprastha Gas Ltd and Gujarat Gas Co Ltd. ONGC and OIL would be able to sell gas from their respective fields at par with the price of Reliance Industries Ltd's (RIL) Krishna-Godavari Basin gas.
The government's decision to hike the APM gas price may shut doors for Reliance Natural Resources Ltd (RNRL) to get gas at lower rates from RIL. Following the Supreme Court verdict, currently both companies are negotiating the price of gas to be supplied by RIL.
"(It’s) most likely (that) under the terms of (the) production sharing contract (PSC), RNRL will be asked to purchase gas from RIL at price of $4.2 per mmBtu as fixed by the government. Hence, we feel that the possibility of RIL selling gas at lower than $4.2 per mmBtu is bleak. At this price or closer to this price, serious concerns arise over the viability of RNRL’s business model," said Kisan Ratilal Choksey Shares and Securities Pvt Ltd in a note.
With the hike in APM gas price, the power and fertiliser sectors will have to bear an additional burden of over Rs10,000 crore. However, the major burden will be borne by the Union government in form of fertiliser subsidies and the State governments of Andhra Pradesh, Maharashtra and Gujarat in form of power subsidies.
"Given that the APM gas price hike is a pass-through for power companies, higher fertiliser subsidies of about Rs50,000 crore would be partially offset by lower power subsidies. However, as a signalling mechanism, in conjunction with the earlier fertiliser subsidy reforms (nutrient-based subsidy regime), this would boost investor confidence in the government's commitment to go ahead with reforms in other areas including auto fuel deregulation," Ambit Capital added. According to analysts, the hike in APM gas price would lead to an increase of about 2% to 3% for electricity tariffs, while compressed natural gas (CNG) prices will go up by 20%.
With the impending meet of the Empowered Group of Ministers (EGoM) likely in the first week of June, to spell out the government's stance on auto fuel price deregulation, any reforms in the auto fuel space would act as a big boost in bringing down the fiscal deficit.
Currently, gas produced by ONGC and OIL is sold to power and fertiliser companies at APM rate of Rs3,200 per thousand metric standard cubic metres (mscm) across the country, except the north-eastern states. The same gas is sold at non-APM rates of $4.75 per mmBtu in Gujarat and Maharashtra, which excludes royalty, transportation charges and taxes.
While increasing the APM gas prices, the Union Cabinet also allowed GAIL to charge a marketing margin of 11.2 cents per mmBtu or Rs200 per 1,000mscm on APM gas sales.
Gas distributors like Indraprastha Gas procure around 85% of their supplies at APM rates of Rs3,800 per 1,000mscm. The APM gas price hike would increase Indraprastha Gas' blended costs by about 50%. In order to maintain its gross margins, the company may have to hike retail gas prices by 10% to 15%, but whether it can pass on the cost increase to consumers, it remains to be seen.
Officials of Indraprastha Gas were not immediately available for comments.
The same property in central Mumbai was available at Rs750 crore a year back
Private sector lender Axis Bank has bought a 4 lakh sq ft property at a Bombay Dyeing mill at Parel in central Mumbai for setting up its corporate office, at Rs782 crore. PJ Nayak, ex-CEO, Axis Bank, had proposed the purchase of this property a year ago (March 2009) at Rs750 crore. The proposal was earlier turned down by the board of directors stating that the Bank could wait for the property prices to soften further (according to various media reports).
Earlier (March 2009) the board did not go ahead with the deal because it thought that it was a costly arrangement, but it has now gone ahead and concluded the same deal under Shikha Sharma, managing director and chief executive officer, Axis Bank, at a higher price. A few board members had also felt that the bank should conserve capital in wake of the prevailing financial market turmoil.
Moneylife wanted to know the reason for the change in decision but the mail sent to the Bank remained unanswered. The bank is shifting its corporate headquarters from Cuffe Parade (south Mumbai) to central Mumbai by the end of the current fiscal.