Unified tariff structure: Gas transco shares give thumbs up

The Petroleum and Natural Gas Regulatory Board (PNGRB) notified regulations for unified gas transmission tariff structure Friday last week. The oil and gas regulator has eased the tariff framework of the country's gas pipeline to encourage investment in gas infrastructure development and to make fuel more accessible for remote consumers. For more than a dozen pipelines that form the National Gas Grid, the PNGRB has notified regulations for a 'unified' tariff system that would lead to a 20-30% increase in transportation expenses charged by users close to the source but a decrease for customers in the hinterland, according to a PTI report.

ICICI Securities analysts said in a statement that unified tariffs would encourage gas transmission companies in setting up new pipelines and result in long term volume growth. They added that companies like GAIL and GSPL would benefit in terms of higher tariffs and profitability.

Analysts at Emkay Global said PNGRB has sweetened open access to CGD by not considering the current OMC or dealer CNG stations of the incumbent as a shipper to facilitate access. PNGRB has also eliminated draft clauses that threaten infrastructure autonomy, such as allowing shippers to set up compressor plants, cascade supplies, and even pipelines if the incumbent is unable to do so.

They said in a report that protection from the existing OMC CNG volume threat is a relief and short-term positive for CNG-heavy CGD players, though incoming competition would weigh on long-term growth and pricing power. Infra exclusivity protection is positive but technical disputes may crop up ahead. The unified tariff is mostly neutral.

Soon after the announcement, gas transmission company shares surged 19% of BSE in early morning trading. Tariffs would be applicable based on the structure of the two zones corresponding to the distance from the gas supply. Gujarat Gas shares rose 19% to Rs 411 on the BSE on the back of massive volumes among individual stocks. On the other hand, Indraprastha Gas was locked at Rs 492 in the 10% upper circuit, Mahanagar Gas rose 10% to Rs 1,023, Adani Gas gained 9% to Rs 345, Gujarat State Petronet (GSPL) added 18% to Rs 243, and GAIL was up 4% to Rs 107 in intraday trading on 27th November 2020. In contrast, at 09:26 am, the S&P BSE Sensex was trading flat at 44,259.