Gas price hike will be positive in long run: Gail India CMD

The latest gas price hike has certainly raised hopes of gas exploration companies like GAIL which can now sell gas at over USD 8/million metric British units, from the current over USD 4/mmBtu.

In an interview to CNBC-TV18, BC Tripathi, chairman and managing director, GAIL said, "Expect gas price hike to be positive in long term," The state-owned upstream firm is also hopeful of investing significantly in exploration activities as the price revision will boost its earnings. Read This: How gas price hike may impact RIL, ONGC, GAIL, OIL earnings
The firm has upped its FY14 capex by around 12 percent to Rs 7,511.50 crore year-on-year. The expenditure will include over Rs 4,300 crore for gas transmission and marketing business and another over Rs 300 crore on its petrochemical expansion.
Tripathi further said that the firm's transmission volumes will escalate as capex picks up.

Below is the verbatim transcript of BC Tripathi's interview on CNBC-TV18 Q: Gas Authority of India (GAIL) is part of the subsidy bearing group because gas is considered a controlled input. Are you now going to contest having to pay any amount as subsidy?
A: The increase in gas price is good for the upstream investments. There is increase in activity in explorations and the production which will be good for the overall sector. GAIL is already building huge infrastructure which is not being properly utilised today. In the long run, this will be good for GAIL if more and more domestic production happens.
As far as subsidy is concerned, we already had discussion with the government and the comfort of the government, the nod of the government is with us that whatever impact we have because of this increase in price towards the fuel and towards the shrinkage for Liquefied Petroleum Gas (LPG) production, will be compensated. For the next financial year, GAIL will be out of the subsidy net. So in that case, all impact will be compensated with a reduction in subsidy. Q: Do you have a firm undertaking from the government on that, because of the input cost increase it will be completely offset by a lowering of the subsidy burden so that your investors do not need to worry today?
A: That is right. We cannot say we have a written undertaking, but we have comfort. We had discussions when the price issues were being discussed. The concerns of GAIL have been raised and the government has accepted them. There is an assurance that whatever is the impact on GAIL will be compensated by the government in terms of reducing the subsidy impact. Q: Would you expect to see a big jump in terms of your transmission business as well assuming that gas production starts picking up? Are you looking to raise your targets?
A: I believe 2016-17 onwards if more and more domestic production happens, transmission volumes will go up. Some investments of GAIL that were already planned, almost Rs 20,000 crore investments have been phased out.
We were waiting for better signals coming from the government so that the upstream companies invest more and produce more gas so that we can build an infrastructure. Once this happens and we see the things panning out, we will also start our further capex plans commensurate to more productions coming in 2017-18 onwards. So, in long run this will help us to utilise the existing infrastructure which is already built, plus this will support more infrastructure creation in the country.