Regulator significantly cuts pipeline tariffs of GSPL

The Petroleum and Natural Gas Regulatory Board (PNGRB) has announced a 47% cut in tariffs for Gujarat State Petronet’s (GSPL) High Pressure (HP) Pipeline network.

(PNGRB’s tariff order determines the prices that a company can charge for transporting natural gas through its pipeline networks.)

  • This is a significant negative surprise.
    • Tariff has been reduced from Rs 34.0 per mmbtu to Rs 18.1 per mmbtu.
    • The company had on the contrary requested for an upward tariff revision by 49% to Rs 50.77 per mmbtu.
    • The difference in the views of the two entities comes from the difference in assumptions of the three key factors – capex (reduced by Rs 13.7/mmbtu), opex (reduced by Rs 8.7/mmbtu), and volumes (reduced by Rs 11/mmbtu).
  • The new tariff will be applicable from May 1.
  • A cut in tariff could lead to lower prices of natural gas for consumers and industries. However, for GSPL, it could lead to a decline in its EPS by 30-40% in FY25, analysts say.

The regulator has attributed the cut in tariff to higher volume assumption and economic life extension of the pipeline.

“The tariff of GSPL HP would be reviewed in the next financial year if there is a considerable variation in actual volume flows (in line with GSPL’s submission of 26 mmscmd (million metric standard cubic meters per day) as compared to the expected volume i.e. 31.67 mmscmd considered by the Board in this Tariff Order,” the regulatory board said in its order.

GSPL can come up with an appeal if there are concerns and there is no question of renegotiations with GSPL on the volume front, the regulator said; adding that there will be revisions in tariffs for GAIL as well.

Many market participants are expecting a revision in price post appeal; though the above comment by the regulator seems to be indicating otherwise.

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