Gas companies feel that although there will be savings due to the rule of zero duty on imported gas for power production, the government should provide relief to all sectors. BC Tripathi, CMD of GAIL says that this will save costs by 70-80 cents per mmbtu, but very few power plants are currently using imported gas. The relief must be for across the board usage and not just for power generation, he told CNBC-TV18.
Speaking on his company's performance in the rest of the year, he expects the margins to remain under pressure due to high subsidy burden. We have requested the government to ease it, Tripathi adds.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Jyotiraditya Scindia said very categorically that the government is going to allow zero duty import of gas. He also wants gas to be available to power companies at USD 5 and that is also in the works. How will that impact your company if a zero duty gas is allowed?
A: The custom duty on imported gas is only at the level of 5 percent now. The government has already issued a notification that in case the gas which is imported for power plant will have zero duty. Definitely, this will reduce cost of gas to the extent of 70-80 cents per mmbtu. The production cost of power will also be cheaper by 50-60 paisa a unit.
But, imported gas is hardly going to the power plants. The power plants are asking for domestic gas. Little amount of gas, which is going to the power plant, will definitely get some benefit in this. It will help us to import more gas for captive power generations, for merchant power. So definitely this will help the power and gas sector.
Q: If you imported at zero duty, will it be viable for you to sell it to them at USD 5?
A: Yes, why not. The custom duty is passed through to the consumers. Ultimately, it is a benefit to the consumer who will not have to pay any custom duty. This will be helpful.
Q: Currently, the imported gas is about USD 13. Even if you were to take import duty out, how would that be viable for someone like you to sell it at around USD 5-6?
A: Not much of the imported gas is going for the major power generation today. Small quantity of imported gas is being supplied to the power plant and to meet their shortfall, they pull it. If the power sector reforms are introduced, order of the day tariff comes, it will help. It will reduce the cost of gas by 70 cents per mmbtu. If the crude is USD 100 per barrel, this will translate into a saving of 70 cents.
Q: That is only if you provide that gas to power companies not to use it for other procedures. If you can give domestic gas to power companies and use this gas for other purposes, that deflates the purpose because then you will have to pay import duty in any case?
A: I agree with you as this relaxation has been given only for the power plant today. In true sense, if we have to import more gas, this should be there across the board for all the sectors, for all the imported gas. As you have zero duty of import on crude, you should have zero duty on import of gas as well.
Q: How are you seeing the arithmetic for your company in the remaining six months after all the gas availability from KG basin is not forthcoming? You saw your margins dip in FY13 too. How will margins end in FY14?
A: I agree with you as the transmission volumes are down by at least 15-20 percent because of the drop in KG-D6 production. To that extent, small amount of spot purchases of LNG and the mid-term gas are being bought and sold.
Almost 1.5 million tonne of LNG is being imported. We will be able to compensate somewhat but it will not be able to replace the total shortfall of domestic gas.
However, we believe that the new pipelines, which have been commissioned to the southern India, will have new customers entering into it. Definitely the margins will be under pressure and that is why we have been requesting government to reduce our subsidy burden as that is another major element.
Last year, subsidy has gone to the level of Rs 2,700 crore and the year before it was Rs 3,200 crore. This year we are expecting subsidy will go down substantially for GAIL because of the drop in domestic gas production. With that we will be able to maintain our last year’s number or a little more than that.