The Union government is working to ensure that city gas distribution (CGD) companies pass on the benefits of gas reforms to end consumers, Petroleum and Natural Gas Regulatory Board (PNGRB)-Member, Gajendra Singh told Moneycontrol on March 6.
Singh said CGD companies are booking higher profit margins, something that the government is concerned about. His comments come on a day when shares of most city gas distribution companies declined on concerns of higher regulation in the sector. Mahanagar Gas Ltd was the biggest loser closing at Rs 1,329.40 on the BSE on March 6, down over 15 percent from previous close.
“We are advocating for reasonable returns (for CGDs) but if somebody is booking extra profits then it is a concern. Our primary function is protection of consumers and ensure benefits (of gas reforms) are passed on to end-consumers,” said Singh.
Government provides APM gas, which is capped at a lower and upper limit of $4.5 per MMBTU and $6 per MMBTU, respectively, to the CGD companies for domestic piped natural gas (PNG) and compressed natural gas (CNG) to increase gas consumption in the country.
Petroleum and Natural Gas Minister Hardeep Singh Puri on March 4 told reporters at an event that end-consumers in the country have failed to fully benefit from government’s gas reforms as CGDs are continuing to enjoy high profits. He added that the government is willing to consider taking drastic steps to ensure consumers’ benefit.
Subsequently, brokerage Citi downgraded shares of Mahanagar Gas to 'Sell' from 'Buy' and cut its target price in a report on March 6. Share prices of other CGD companies also declined, with Indraprastha Gas closing over 6 percent lower, and Gujarat Gas closing almost 5 percent down.
Citi lowered its target price for the MGL stock from Rs 1,480 to Rs 1,405, expressing concerns about exclusivity and margins. The brokerage is closely watching potential downside catalysts over the next 90 days.
Singh said that since CGD companies argue that the gas prices also include distribution charges incurred by them, along with gas input costs, the PNGRB has now started working on collecting data for distribution charges to examine their claim.
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