In a regulatory filing, City Gas retailers expressed profitability concerns due to supply cuts and hinted at price hikes.
City gas companies such as Indraprastha Gas Ltd and Adani Total Gas Ltd are considering raising CNG prices after cutting supplies of the cheaper input gas for the second time in a month, but government officials say retailers will have to provide a cost break-up to justify the increase. .
The government has reduced the supply of low-cost natural gas from old fields to city gas retailers by up to 20 percent from November 16. The decline followed a 21 percent decline on October 16.
City gas retailers IGL, which retails CNG in the national capital and surrounding cities, Mahanagar Gas Ltd, which does the same in Mumbai, and Adani Total Gas Ltd, which operates in Gujarat and elsewhere, in regulatory filings indicated profitability concerns due to supply cuts and signaled was given Increase the price
Petroleum and Natural Gas Ministry officials, however, are not unimpressed as they feel that retailers operate on “hefty” margins and can easily absorb the additional cost of replacing lost volumes with marginally higher-priced gas from new wells. Imported LNG.
“Take IGL for example. It reported a net profit of Rs 1,748 crore on revenue of close to Rs 16,000 crore in the financial year ended March 31, 2024. That’s a margin of 11 per cent. MGL had around Rs 1,300 crore on revenue of Rs 7,000 crore. A profit of crores was made. Which retailer earns such a margin?” asked a senior official.
Officials said the government is not against profit-making companies but if they want a lower cost input (gas from old fields) they should also disclose the cost breakdown of the final product (CNG).
“There can’t be a situation where you insist on getting inputs at lower cost but don’t disclose the final product price build-up,” said another official.
“Profitability figures show that they are operating on huge margins. Indian Oil Corporation, also a retailer, had its best ever profit of Rs. 8.71 lakh crore on revenue of Rs. 39,617 crore, representing a margin of 4.5 per cent.”
Natural gas pumped underground and under the seabed from places within India from the Arabian Sea to the Bay of Bengal is the raw material that is converted into CNG for sale in automobiles and piped cooking gas to households.
Production from legacy fields, called APM gas and whose price is regulated by the government to feed city gas retailers, is falling by up to 5 percent annually due to natural depletion. Due to this, the supply in the city has decreased. gas retailers, officials said.
While the input gas for piped cooking gas to households is safe, the government has reduced the supply of raw materials for CNG. Gas from the legacy fields was used to meet 90 percent of CNG demand in May 2023 and has declined progressively. Supply was reduced to just 50.75 percent of CNG demand starting October 16 from 67.74 percent last month. Now it has been further reduced.
In a stock exchange filing, IGL said, “Based on other communications received by the company from GAIL (India) Ltd (nodal agency for domestic gas allocation), it is to be stated that the domestic gas allocation has been further reduced. The company is effective from November 16, 2024.
“The revised domestic gas allocation to the company is approx. 20 percent less than the previous allocation which will adversely affect the profitability of the company.”
IGL receives domestic gas allocation to meet the CNG sales volume requirement at government-fixed prices (currently USD 6.5 per million British Thermal Units).
To make up for the lost volume, it can buy gas produced from new wells that costs about USD 2 more.
Drilling new wells is expensive and hence the price of gas from them is also higher, officials said.
Sources at city gas retailers said that using the expensive alternative to make up for the shortage could lead to an increase in CNG prices which could go up to Rs. 4-6 per kg varies. Adani Total Gas Ltd said in a separate filing that its supply has been cut by 13 percent.
“Such a decline is in the City Gas Distribution (CGD) industry. Pending resolution with industry key stakeholders, the company’s profitability will be adversely affected,” it said.
“Furthermore, the company is examining the current situation and will calibrate retail prices to end customers to minimize the impact of lower allocations while continuing to provide uninterrupted gas to its customers.”
MGL said, “As per policy guidelines dated August 10, 2022 issued by the Ministry of Petroleum and Natural Gas, locally produced Administrative Price Mechanisms (APM) natural gas will be allocated to City Gas Distribution (CGD) companies for priority segments, particularly domestic Piped Natural Gas and CNG (Transportation). The policy states that domestic gas will be supplied to CGD units only up to the available quantity and allocated to GAIL (India) Limited for these segments.”
“In line with this policy, the company was allocated APM natural gas for domestic PNG and CNG (transportation) based on the availability of APM gas. The APM gas allocation to the Company has been reduced by 18 percent with effect from November 16, 2024 as compared to the APM allocation of October 16, 2024. The company’s profitability will be impacted due to this huge reduction in allocation,” it said.
To overcome this shortfall, MGL is exploring options to procure gas through new wells locally produced from ONGC and benchmark-linked long-term gas contracts to continue supplying gas to its customers with price stability, the filing said.