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Shares Nosedive; IGL To Contest Tariff Cut Order

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Shares of Indraprastha Gas (IGL) went into a tailspin after the The Petroleum & Natural Gas Regulatory Board (PNGRB) asked the company to lower its network tariff for compressed natural gas (CNG) and liquefied petroleum gas (LPG) by over 60 per cent in New Delhi and the NCR and asked the firm to refund to consumers the excess amount charged since 2008, a decision IGL challenged in Delhi High Court on Tuesday. IGL's net worth will erode if the order remains unchanged, said IIFL's Harshvardhan Dole, talking to CNBC-TV18. Under this scenario, IGL could struggle to make even normative returns on the capital it has invested in the business. IGL Managing Director M Ravindran told reporters the company was not given a "fair chance" to implede its case before PNGRB passed its order. The regulator has said that its order be implemented immediately. The new tariff is effective retrospectively from 1 April 2008 and as per rough estimates, the excess tariff charged could be around Rs 1,600 crore. "IGL has approached today Delhi high court, where we have challenged the constitutionality and legality of the powers of the PNGRB (Petroleum and Natural Gas Regulatory Board) to fix the tariff," said Ravindran. PNGRB's directive had sent shares in gas utilities reeling, with IGL closing down 34 per cent on Tuesday, while Gujarat Gas ended down 15 per cent and Petronet LNG down 3.1 per cent. The Petroleum and Natural Gas Regulatory Board (PNGRB) in an April 9 order fixed pipeline transportation tariff at Rs 38.58 per million British thermal unit as against Rs 104.05 per mmBtu sought by IGL. Gas compression prices were reduced to Rs 2.75 per mmBtu from Rs 6.66, both changes being effective from April 1, 2008.  IGL, which potentially may be impacted by Rs 1,000 crore to Rs 1,700 crore in past dues, said it is not implementing the order immediately pending its appeal against the directive in the Delhi High Court. "We are not clear how they (PNGRB) have calculated this tariff. We do not know the assumptions they have made," IGL Managing Director M Ravindran said. "We have today approached Delhi High Court, challenging the constitutionality and legality of the powers of the PNGRB to fix the tariff." IGL plunged as much as 51 per cent to Rs 170 before closing at Rs 229.80 on the Bombay Stock Exchange (BSE). Ravindran said the company was not given a "fair chance" to implede its case before PNGRB passed its order. "There are differences (with PNGRB) on many counts... the gas volumes, capacity utilisation and the pipeline network (taken into account for calculating the tariff)." IGL may not be able to raise its margins to accommodate the refund on tariff as the margins too would be determined by PNGRB. IGL in 2010-11 had a total revenue of Rs 1,750.46 crore and a net profit of Rs 259.77 crore. If it were to implement the order, its outgo would be a minimum Rs 1,000 crore and may go up to Rs 2,200 crore if some analysts are to be believed. Though IGL insisted that it was not duly consulted before PNGRB passed the order, the 13-page order stated that the Board and its consultants had sought clarifications over data on capital and operating expenditure submitted by IGL in May 2009. "During the process of verifying the cost and other data for determination of the network tariff and compression charge for CNG in respect of the Delhi city gas distribution network, certain issues arose on which clarifications were requested from IGL, by both the consultants and the board. "Since the exercise of obtaining clarifications from IGL and their appropriate resolution is time-consuming requiring cooperation of all the stakeholders and also given the fact that determination of transportation tariff was being carried out for the first time, closure o this issue could be affected only by June 2011," the order stated. IGL's challenge on PNGRB's constitutional and legal powers to fix the tariff may also face hurdle as the PNGRB Act of 2006 specifically entrusts the Board of the responsibility to lay down the transportation tariff for city or local natural gas distribution network. Fears of similar PNGRB orders for other CGD distributors triggered fall in shares of Gujarat Gas Co, which fell 15.10 per cent, and Gujarat State Petronet Ltd that dropped 7.50 per cent on BSE. GAIL India Ltd, the nation's biggest gas distributor and part-owner of IGL, declined 1.82 per cent. Petronet LNG was down 3.1 per cent.