Indraprastha Gas: Delhi High Court order gives interim relief
- Delhi High Court order favoring IGL: The Delhi High Court has quashed the tariff order that the Petroleum & Natural Gas Regulatory Board (PNGRB) had served to Indraprastha Gas (IGL) on 9 April 2012 to "fix the maximum retail price or requiring IGL to disclose the Network Tariff and Compression Charges to its consumers."
- Await PNGRB/Government move: Motilal oswal believe that the issue at hand could take the following courses: (1) PNGRB goes to the Supreme Court and/or (2) the government amends the PNGRB Act so as to strengthen its authority.
- Interim relief to IGL, in Motilal Oswal's view: The High Court, while giving its decision, restricted itself to the notified PNGRB Act, and Motilal oswal believe that the verdict clearly points out the loopholes in the Act. Now, to get entities like IGL and Gujarat Gas under PNGRB's authority, the government will have to strengthen the Act through amendments. In their view, this order provides only interim relief to city gas distribution (CGD) companies. Tariff determination (for third party volumes) for long distance pipeline entities like Gujarat State Petronet and Gail India would continue.
What the Delhi High Court order says:
- "PNGRB is not empowered to fix/regulate maximum retail price at which gas is to be sold by entities like IGL, to the consumers". - Motilal oswal believe this was never disputed by PNGRB.
- "PNGRB is also not empowered to fix any component of Network Tariff/Compression Charge for an entity like IGL having its own distribution network". - The High Court says that as per the PNGRB Act, PNGRB can only fix the tariff to be charged to other marketers of gas (tariff between entities) and not the tariff to be charged to consumers (tariff charged by IGL, which has its own network). The High Court acknowledges PNGRB's powers to fix tariff for the third party, but these will apply to IGL post the completion of its exclusivity period, when new entities can use IGL's network.
Key arguments of PNGRB and IGL:
- PNGRB argued that it is not fixing the retail price of CNG but only the transport cost. It further added that IGL had accepted its exclusivity grant, which was subject to submission of tariff for PNGRB approval.
- IGL says that the "Act" is supreme over "Rules" and the Act mentions tariff determination only for Common Carrier.
Rating under review:
- While clarity is yet to emerge on the PNGRB/Government move, in the interim, the verdict is positive for IGL, as it can maintain status quo in its operations.
- If PNGRB goes to the Supreme Court and wins, and if marketing margin were reduced from the current implied Rs4.6/scm to Rs0-3/scm, Motilal oswal estimate 20-60% impact on IGL's EBITDA and 30-90% impact on PAT. Their rating is Under Review.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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- Indraprastha Gas Earnings Preview: Q3 PAT to grow 17% y-o-y, neutral
- Indraprastha Gas: PAT to grow at a CAGR of 13% over 2013-2016E, buy
- Indraprastha Gas Q1FY15: Maintain neutral
- Indraprastha Gas: Lack of clarity in predicting earnings, mainatin neutral
- Indraprastha Gas quarter update: Highest gross margin in its history, buy
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