Govt should not cap margins on imported gas, says GAIL

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Govt should not cap margins on imported gas, says GAIL

Gas Authority of India (GAIL) feels the government should not cap marketing margins on imported gas as the prices (of imported gas) are driven by trends in international markets

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Shaheen Mansuri

Moneycontrol Bureau

Gas Authority of India (GAIL) feels the government should not cap marketing margins on imported gas as the prices (of imported gas) are driven by trends in international markets, said Subir Purkayastha, general manager, finance, GAIL in an earnings call with analysts on Wednesday.

He was referring to the latest media reports which say the oil ministry is keen to regulate margins on imported gas as well. GAIL, which has in the past one month signed contracts with Qatar and US-based companies to import around 10 million tonnes and 3.5 million tonnes each year respectively, will see a pressure on its bottomline if the oil ministry goes ahead with its move regulate margins of imported gas.

The company which supplies around 51% of the natural gas requirement in the country is already in talks with a few international players to import more gas.

The proposed cap on marketing margins of gas imports went unnoticed until last month when the petroleum ministry's technical arm, the Directorate General of Hydrocarbons opined that private sector companies like Reliance industries (RIL) should share a part of marketing margins with the government.

However, RIL wrote to the ministry that even public sector companies like GAIL and ONGC charge a marketing margin but do not share it with the government. Marketing margin is the difference between the purchase and resale prices of a commodity.

While RIL charges $0.135 per million British thermal unit marketing margin on gas produced from its KG oil wells, GAIL also charges upto $0.18 per mmBtu as  marketing margin on around 170 mmscmd gas its transports and doesn't  share it with the government. Did You read:

But brokerages have mixed views on the impact of marketing margin issue on the company. "The proposed cap on gas marketing margin would keep the stock under pressure until any clarity emerges," says brokerage house Emkay Global.

However, Arihant Capital considers this issue as a non event and says: "GAIL has many profit making business verticals like city gas distribution, power and exploration and production (E&P) which will offset pressures arising from other factors."

GAIL reported a 13% year-n-year rise in net profit to Rs 1,091 for the December quarter on better gas trading volumes and better price realisation on petchem and LPG production. The trend will continue said B.C Tripathi, chairman and managing director after announcing Q3 results recently. Read This:  Expecting Rs 2400-2500cr subsidy this year: GAIL

 
Here are latest brokerage calls on the stock

shaheen.mansuri@network18online.com