Given that the tariff applies from November 2008, GAIL will have to return excess tariff/ship-or-pay charges to customers, says Nomura Equity Research in its First Look note
The Petroleum and Natural Gas Regulatory Board (PNGRB) has made it clear that the approved tariff for the KG basin pipeline network of Rs5.56/mmBtu (million metric British thermal unit) is 53% lower than what GAIL was seeking and 59% lower than what it is currently charging. This is a retroactive order applicable from 20 November 2008. According to Nomura Equity Research in its First Look note, this will have a negative impact for GAIL.
For the past period, GAIL will need to provide one-off provision of Rs5.7 billion. This implies a post- tax EPS impact of Rs3 per share. The annual revenue impact on GAIL is Rs1.5 billion. This implies a post-tax EPS impact of Rs0.80 per share. These are Nomura estimates and it forecasts, “Given that the tariff applies from November 2008, GAIL will have to return excess tariff/ ship-or-pay charges to customers.”
The key reasons for PNGRB’s lower tariff are lower assumptions of net block (32% not allowed), future capex (33% not considered) and opex (33% not considered), plus 16% higher pipeline volumes and lower inflation of 4.5% (versus 5% considered by GAIL), according to Nomura analysts. Similarly, to earlier tariff orders, the regulator allows no unaccounted gas provision (versus 0.60% sought by GAIL). Given that most pipeline networks face unaccounted gas losses, Nomura believes that the companies should be compensated for normative losses.
The current tariff order is a provisional tariff order with the final tariff to be decided in a year’s time. Nomura thinks that GAIL will challenge the tariff order.
The likely impact of the tariff order on GAIL’s revenues and net profits are worked out in the following table by Nomura analysts:
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
