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We were expecting tariff to be Rs 5-6 more than what PNGRB approved, will go back for review: Rakesh Kumar Jain, GAIL

"We were expecting the tariff to be at least Rs 5-6 more than what PNGRB has approved. PNGRB has considered fuel gas price for internal consumption at $3.61 for APM gas price and approximately $6.98 for STHP price, which is substantially low even if we compare with the current price and even if we compare it with the likely price based on the Kirit Parikh Committee report.

This issue alone has an impact of Rs 5 and 76 paisa, "says Rakesh Kumar Jain, Director - Finance, GAIL


On Petroleum and Natural Gas Regulatory Board (PNGRB) tariff issue
PNGRB yesterday only issued tariffs for our nine physically interconnected pipelines. The revised tariff is Rs 58 and 61 paise, which is almost Rs 12 higher as compared to the existing tariff of Rs 46 per MMBtu for similar pipelines. This means there will be an increase of around Rs 1,600 crore in our revenue, from current revenue level of Rs 6,500 crore to Rs 8,100 crore. This will directly help increase profit before tax.

What we also understand is that double counted volume in GAIL’s transmission business is to the tune of 10 mmscmd and this may not be a part of integrated tariff. Do the numbers you just told us include this or exclude this?
In terms of physical numbers, we are transmitting 107 million of volume after locking of the duplicate volumes and we are transmitting almost 94 to 95 million through these nine physically connected pipelines and remaining 13 million volumes we are transmitting through the pipelines which are not part of this integrated natural gas pipeline tariff.

When we look at the number of 58.6, which has been recommended, it is something slightly lower than what you had recommended or you had asked for. Now, one of the key reasons is lower gas price assumptions. Will you be putting this tariff for a review? How would you take this up?
We were expecting the tariff price to be at least Rs 5-6 more than what PNGRB has approved. PNGRB has considered fuel gas price for internal consumption at $3.61 for APM gas price and approximately $6.98 for STHP price, which is substantially low even if we compare with the current price and even if we compare it with the likely price based on the Kirit Parikh Committee report.

This issue alone has an impact of Rs 5 and 76 paisa. There are some more factors based on which the tariff has been reduced. Certainly, we are examining the order and we will go back to PNGRB for review of their approved tariff because this will be the actual outflow based on the prices which will be purchasing the gas for internal consumption and we hope PNGRB will consider the same.

Let us talk about normal business as well. In FY23 so far, transmission volumes are impacted. This is owing to higher prices. In FY24, what are you expecting in terms of volume growth, which segments can lead it and can things normalise?
We are currently transmitting almost 107 mmscmd of volume and this volume has come down from last year's volume of 111 mmscmd. And there are various reasons because of which the volume came down. One of the reasons is one of the upstream suppliers has stopped supplying gas since May until February this year, February 23.

That is one of the reasons our volume got impacted and then the spot price also went very high and that actually forced a lot of customers to switch to alternate fuel. In coming financial year, we expect to transport around 123 mmscmd of gas, 107 we are currently transporting and 4 mmscmd will come from fertiliser plants which have recently been commissioned in Sindri and Barauni and approximate 3 mmscmd will come from our PATA Petrochemical plant because in view of the higher gas prices, we ramped down our PATA Petrochemical plants and there will be normal growth in CGD business and transmission will happen through our pipelines that will contribute 3 million and rest 2 to 3 million will come from the refineries which will be coming along Jagdishpur-Haldia pipeline.

In the coming financial year, we expect to transport almost 122-123 mmscmd of gas. This will take our revenues from the current level of Rs 8,100 crore based on the revised tariff to almost Rs 9,000 to Rs 9,500 crore per annum.

The marketing segment is where you are expecting an EBITDA of about Rs 3,000-3,500 crore in FY22. What are the segments or what are the drivers for that? Secondly, how sustainable is that number?
I will take you back to last year when we had our annual investors meet. We said that we will be earning around Rs 2,500 crore for the marketing segment. Largely, the reason for the same was that we have contracted most of the volume we source from the United States, almost 50 to 60% volume on back-to-back basis with a good margin.

Second, in the earlier APM gas and the RNG volume also, we have back to back contracts. Only for the 10 MMCMD gas from the United States we have not signed any back to back contract. The reason: we want to take the benefit of destination flexibility of gas and the benefit of optimization and also available benefits of higher price in the international market.

We have worked it out on the basis of back-to-back contracts and likely prices in the future and upstream prices for our contracts. We have worked out that we will be earning around Rs 3,000-3,500 crore because this year also we reported a profit of Rs 2,500 crore for 9 months and this profit was reported after accounting for an inventory loss of Rs 1,100 crore.

This was one of the most challenging years. If in a challenging year, we could achieve the target of Rs 2,500 crore plus after accounting for inventory loss of Rs 1,100 crore, we expect to maintain the EBITDA in the range of Rs 3,000-3,500 crore per annum from gas marketing.

Given how volatile energy and commodity markets are, do you think $3-4 movement is pretty common as far as prices are concerned? How sustainable is it with increased volatility?
We have sold the same index based on which we have sourced the gas. We have sold almost 55-60% gas on the same index from which we are sourcing it. Therefore, any volatility in the price of index will not impact us. Second, we have a good commodity price risk management team and from time to time, we are taking various actions to hedge our future gas prices to avoid such volatility as far as the long term gas contract prices are concerned.

Any update on the Gazprom contract? Have you started receiving gas from there?
Yes, we have been taking up the issue of supply with Gazprom. Now it is SEFE, regularly and our mitigation measures and continuous discussions with SEFE has resulted into positive things. This month, Gazprom is supplying 2 cargoes plus. One cargo has already been supplied on March 18 and another cargo would come on March 25. They have also lined up 2 more cargoes for April. We are in continuous touch with the supplier and we hope that the supply will resume on a normal basis.

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