Shares of city gas distribution cos rally upto 19% after PNGRB simplifies gas pipeline tariff

Shares of city gas distribution companies rallied upto 19 percent in the early trade on Friday after the oil & gas regulator Petroleum and Natural Gas Regulatory Board (PNGRB) notified regulations for a unified gas transmission tariff structure.

Among stocks, Gujarat Gas rallied over 19 percent to Rs 411.20 per share, Indraprastha Gas jumped more than 14 percent to Rs 514 apiece while Mahanagar Gas surged over 13 percent to Rs 1,057 and Adani Gas gained over 8 percent to Rs 344.60 on BSE.

According to PNGRB, the tariffs will be applicable based on two-zone structure related to distance from the source of gas.

PNGRB has simplified the country's gas pipeline tariff structure to make the fuel more affordable for distant users and to attract investment for building gas infrastructure.

The PNGRB has notified regulations for a 'unified' tariff structure for over a dozen pipelines that form the National Gas Grid which will lead to a 20-30 percent rise in transportation charges paid by users near the source but a reduction for consumers in the hinterland.

At least 20 percent of the CGD network and compression capacity would have to be made available for open access to new entrants as per the regulations.

"Unified tariffs will encourage gas transmission companies to set up new pipelines and will result in long term volume growth. Companies like Gail and GSPL will benefit in terms of higher tariffs and profitability," analysts at ICICI Securities said in a note.

CLSA said that the unified transmission and open access regulations if implemented, would mean a one-time as well as annual cost inflation for gas customers, like city gas players, and could be seen as a negative for IGL and MGL, even though it should be manageable.

Speaking to CNBC-TV18, DK Sarraf, Chairman of Petroleum and Natural Gas Regulatory Board (PNGRB) said, “The unified tariffs will give consumers more options to buy gas.”

According to Sarraf, the entire increase in tariffs will happen on the day of the effective date.

PNGRB expects reasonable and increased consumption of gas post these regulations and customers up to 300 km will only pay 40 percent of the unified tariffs.

“We will take 1-2 months more for an effective date for unified tariffs and open access,” said Sarraf.