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Improvement in the Profitability of GAIL 

Mumbai, 24 November, 2005

Recently, a certain section of media has carried a news item in respect of review of tariffs for the Hazira-Vijaipur-Jagdishpur (HVJ) and the Dahej-Vijaipur Pipe Line (DVPL) systems of GAIL by the Tariff Commission.

The news item is misleading. CMD of GAIL clarifies “The review of Tariff Structure is expected to improve the profitability of GAIL”. 

It is understood that the Tariff Commission has recently submitted its recommendations to the Ministry of Petroleum & Natural Gas. We have not been given a copy of the same. Based on what we understand, our views are follows :

1) We are very happy that the Tariff Commission has recommended:

(i) The Cost of Services (COS) Methodology for computation of pipeline tariffs, in place of the earlier Discounted Cash Flow (DCF) methodology

(ii) An Integrated tariff for the HVJ and the DVPL systems of GAIL, in place of the current individual tariffs.

2) It is our strong belief that the above important recommendations of the Tariff Commission would not only allow adoption of a simpler, transparent and flexible methodology but also would pave way for the creation of a uniform tariff computation mechanism, which would become a benchmark for all the pipeline systems in the country. In our view, once these important principles are accepted by the Government, it would equally apply to all the gas transportation companies, namely, Gujarat State Petronet Limited (GSPL), Gujarat Gas Company Limited (GGCL), Assam Gas Company Limited (AGCL), Gas Transportation and Infrastructure Company Limited (GTICL) of Reliance and indeed would also apply to all the oil pipeline companies like IOC, HPCL, BPCL for their crude and product pipelines. 

3) In respect of the HVJ and DVPL tariffs, since an integrated tariff has been recommended, we understand that the recommendations would lead to some extent a lower tariff for the HVJ system and to some extent a higher tariff for the DVPL system. The final outcome would depend upon the decision to be taken by the Group of Ministers and only then the exact financial implications for GAIL and our customers could be worked out. Nonetheless, since a COS based integrated tariff has been recommended, we understand the review of Tariff Structure of our pipeline systems would lead to improvement of the profitability of GAIL. 

4) As regards the Marketing Margin on the sale of R-LNG, firstly, LNG is not covered under the Administered Pricing Mechanism (APM) of the Government. Today, besides R-LNG, there are a number of other non-APM fuels being sold by the Government companies like IOC, HPCL, BPCL at market prices and the marketing margin on all these non-APM products are not regulated by the Government. Further, today R-LNG is not only sold by Government Companies but also by private players like Shell. Therefore, in our view, a clear-cut principle needs to established in this regard and that would involve discussions with all the industry players. GAIL would be happy to participate in such industry discussions so as to arrive at a fair mechanism for computation of marketing margin on the sale of R-LNG in the country.

E-Mail : newseditor@sarkaritel.com