PNGRB has no mandate to control our marketing margins: GAIL

In a big boost to gas utility companies, the Delhi High Court ruled in Indraprastha Gas (IGL) favour yesterday saying government regulator, Petroleum and Natural Gas Regulatory Board (PNGRB) did not have the authority to fix tariffs.

Shares of gas utility companies such as IGL, Gujarat Gas and Petronet LNG jumped despite generally weak market conditions over disappointing GDP growth. Also Read: IGL-PNGRB case ruling adds regulatory uncertainty for CGD
However, even as the verdict is likely to bring relief for city gas distribution (CGD) companies, it will hardly have an impact on gas transporters like GSPL and GAIL. BC Tripathi, the chairman and managing director of GAIL says transmission companies will continue to fall under the ambit of PNGRB. “The high court’s order provides relief only for CGDs,” he confirms.
Tripathi further clarified that PNGRB had no mandate to regulate GAIL’s marketing margins. “The marketing margins for the domestically produced gas and marketed by GAIL are approved by the Cabinet so nobody has the mandate to review that as of today.” Below is an edited transcript of his interview to CNBC-TV18. Watch the accompanying videos for more. Q: While the Delhi court’s observation that the PNGRB should regulate margins only of those who transport other people’s gas and not companies like IGL, which are also the producers of the gas that they transport - the market’s interpretation is that it is negative for companies like yours which are to some extent transporters of gas. Do you see this as impacting the order of the high court on the PNGRB’s gambit?
A: The issue has not been properly understood, the way various analyst are putting forward. As regards as GAIL is concerned, GAIL is already transporting gas for others and before the formation of the PNGRB also, all the tariff of GAIL was regulated and is regulated even today. So there is no negative sentiment as such because GAIL has multiple roles apart from transporting gas, production of petro chemicals, LPG and then city gas distribution or CGD.
As far as the transportation segment is concerned, that was already regulated before the PNGRB came into existence and even after that, so there are no negative sentiments. The decision which has been given in this particular context of IGL, an independent company and GAIL holds 22.5% share it says that when IGL supplies gas to its consumer the transportation tariff, compulsion charge and the ultimate cost of the gas to the consumer cannot be regulated by the regulatory board.
However, the infrastructure which has been provided by IGL, if it is available for the third party access after the exclusivity period is over that tariff will be decided by the regulatory board so that after the exclusivity period when it is over, the customer has the choice either he takes the gas from IGL or any such entity who is already existing or from the third party who will have free access to the infrastructure available with IGL or any other city gas distribution company. Ultimately it is the customer who will decide which one is beneficial to him. Q: The PNGRB’s order on IGL came as a bit of a shocker because it was a massive cut back in the kind of margins that IGL was enjoying until then. Now the fear is that if the PNGRB does have the power to regulate your marketing margins and it can also make rules retrospectively with respect to your margins that can be an overhang on your stock. Would you harbour that fear?
A: No. The market at large has not understood. Yes, the issue of making rules and application of rules from retrospective date is never accepted by any of the industry in any of the segment is not correct.
As regards to the marketing margin of GAIL are concerned, let me clarify that the marketing margins for the domestically produced gas and marketed by GAIL are approved by the Cabinet so nobody has the mandate to review that as of today. These tariffs are approved by the Cabinet.
The only issue which was discussed was the gas which is being sold which is the imported gas. To the government as well as to the regulator we have been requesting and telling them that such gas which is being procured by us on an international competitive basis where there are huge exposure to anybody who is importing gas in marketing, their marketing cost and their marketing margins should be left to the market forces.
As regards to the domestic gas which is almost 85% of our marketing portfolio, the margins are already approved by the Cabinet. So there is no such risk on that. Yes, for the future gas what view government will take, what view the regulator will take in terms of marketing margins that is to be seen but as of today the way the decision has come from the high court it says - the pricing of gas and the margins on the gas are not within the preview of the regulatory board. They can only review the transportation tariff for third party access not for the entity who owns it. Q: With regards to the Delhi High Court verdict on IGL it is limited basically to IGL and it cannot be extrapolated to the industry that’s exactly what you are saying. So for other gas companies such as yourself it’s basically status quo?
A: No again I am saying that GAIL is different from IGL. GAIL is the bulk transportation company, the transmission tactics of GAIL are definitely within the purview of the regulatory board and they are being fully complied with. In the case of local distribution, in case of retailing of gas in cities like Delhi, Mumbai, Hyderabad and other places, there the high court had decided that the tariff, if somebody wants to access in these infrastructure for third party only can be decided by the regulatory board, not for their own gas transportation. Q: Now there are talks or there is an overhang on IGL in particular that they might actually take the appeal to the Supreme Court. What is your analysis with regards to the PNGRB and its authority over IGL in this case in particular?
A: As the legal people are interpreting the act it doesn’t give power to the regulatory board but tomorrow if the government modifies the act and bring out specific provisions then. Yes, the regulator will have the power. But if you look at the whole sector whether it is industry or whether it is the regulator it is a beginning in the country. People need to understand the segment and people need to understand the regulatory provisions. I am sure, going forward there will be convergence of views and there will be a unanimous approach both by the industry as well as by the regulator. Q: Your conclusion is that since you are a transporter of gas you are within the rules made by the PNGRB but since your margins are set by the Cabinet you don’t expect them to be changed by the PNGRB - is that how you understand the situation?
A: That’s right. The transmission tariffs for bulk transportation are already under the purview of regulatory board and they are been fully complied. It is not something which has happened after the high court’s decision, this has been happening for over a decade. As far as the transmission segment of GAIL is concerned, it is same that it was earlier and what it is now after the regulatory board has come.
That was in the context of local distribution network in the defined geographical area like Delhi-Mumbai. There are two different regulations for bulk transportation and there are different regulations for the city gas transportation. Q: Can you give us an idea on how do you expect gas transportation volume at GAIL to pan out in the current quarter? Do you expect any pressure on volumes at all?
A: Definitely, due to the low gas production from the domestic source especially KG-D6 basin, the transmission has gone down but we are trying to import more and more gas and at least it will remain at the level of last year. By the end of this calendar year, the transmission volume will remain at the level of 120 million standard cubic meter which is currently 117-118 on an average per day basis.