MC Interview: Indraprastha Gas doesn't see room for further price cut unless APM gas allocation increases, says MD

Chatiwal said that IGL, unlike many other CGD companies, has kept its prices lower than other players

Indraprastha Gas Ltd (IGL) would not be able to further reduce prices unless the allocation of APM (Administrative Price Mechanism) gas rises in the country, Managing Director Kamal Kishore Chatiwal told Moneycontrol in an interview.

The state-run city gas distribution (CGD) company, among other players in the country, had on March 6 slashed prices of compressed natural gas (CNG) by Rs 2.5 per kg. The revision in prices had come after the government’s remarks that CGD companies have failed to pass on benefits of gas reforms to consumers to book higher margins.

Chatiwal said that IGL, unlike many other CGD companies, has kept its prices lower than other players, and the comments by the government do not hold for the company.

He said IGL would increase capital expenditure by 10-15 percent in the financial year 2024-25 and plans to diversify into compressed biogas (CBG) and solar sectors, among other initiatives.

To some extent, this may be true for other entities. Maybe some entities where the retail prices are above petrol and diesel, that is true for them. But IGL is selling at 20-30 percent discount to petrol and diesel prices. Some companies are selling at around Rs 100 or so. But we sell at the cheapest prices compared to other entities.

After the recent cut of Rs 2.5 per kg, there is no room for further price reduction unless we see an increase in APM gas. Because where we are also expanding, and in those GAs (geographical areas) we would require a huge influx of capex.

The first thing is infrastructure exclusivity. That is available for 25 years and can be extended for 10 years. IGL is in the process of applying to the PNGRB for extending infrastructure exclusivity for 10 years.

Other is common carrier. For this, you have to design your infrastructure in such a way that 20-25 percent is kept for the common carrier. There was no definition when we were designing our infrastructure. In case I have to keep 25 percent extra, there has to be that room. There is no common carrier available. So that is one challenge. We have not designed our infrastructure for any spare gas. Unlike in the cross-country pipeline, while awarding it was upfront clear that you to keep 25 percent for common carrier.

Also, there is no clarity on the operational aspects of a common carrier. As in what would be the transportation charges, compression charges, and other related charges. Those kinds of regulations are still pending. So first we wait for regulations to become clear by the PNGRB. We will follow the regulations.

We have just started in the CBG space. We would be setting up our own 19 plants, which in the future might even go up. This aligns with our vision of moving towards energy transition. SATAT (Sustainable Alternative Towards Affordable Transportation) was not very successful as its basis was the use of CBG in transportation through cascades; which is not a continuous operation. Therefore, it became a problem to make it viable. But the CGD network has a huge capacity and a huge lifetime. So, city gas entities can consume large amounts of gas and ensure continuous operation of plants.

Other than the 19 CBG plants, we have signed MoUs with 50 other plants for the offtake of gas. IGL is confident that we would be able to achieve 5 percent blending of CBG in CNG and PNG by the financial year 2025-26, much ahead of the target announced by the government. Some of the 19 CBG plants to be set up by IGL would come up in the upcoming financial year, and others in the year after that.

Other than that, the company would also look at assets in the solar energy space.

The price of compressed biogas would be almost equal to APM gas. Therefore, there would be no impact on CNG or PNG prices. However, if we have to reduce prices or not would be a strategic call. Wherever we have to expand, we can make prices attractive.

We may see further softening in gas prices. Gas prices are currently in the range of around $8- $9 per mmBtu (million metric British thermal units) and can go down to $6.5 per mmBtu in the coming months. With the softening of prices we have made spot purchases; in Q4 we purchased 1 lakh SCM (standard cubic metre) of gas from the spot market.

If you have low prices you can get good volumes from industrial players as the sector is very sensitive to prices.

The company would disclose that after the board’s approval. But it will be about 10-15 percent higher than the current year. We are planning diversification in the compressed biogas sector, solar, etc. In the coming year IGL will also be looking at inorganic growth.

The core business would continue to grow in the same way as the current year. We would set up around 80-90 CNG stations in the coming year.

For volume growth, the board would take a call on that. In the current year (FY24) the company saw around 3-4 percent volume growth. So we think the company would be closing at 9 million.

There is also a push by the government for CNG vehicles. What we have observed is interstate buses are not making much profit in EVs. We need to have solutions which are suitable for the country. Recently, the Uttarakhand government rolled out a policy for the adoption of CNG vehicles. The government would provide up to 50 percent of subsidy on the purchase of CNG vehicles.