ity gas distribution companies in India have significantly higher profitability than explorers, according to a February 2017 report from Kotak Institutional Equities. The report notes that both Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) have “quite high profitability and returns in their city gas distribution businesses. Their profitability has gone up over the past few quarters as they have been able to retain the benefits of the decline in price of domestic gas.”
On the other hand, explorers such as ONGC have low profitability and returns in their gas production businesses. The report notes that it is indeed “quite strange” that the net realisation (after royalty) on gas for upstream companies is lower than the gross contribution margin earned by IGL and MGL. According to the report, the realisation per unit for IGL in fiscal 2015-2016 stood at ?25.2/scm (standard cubic metres); correspondingly, ONGC’s realisation was at ?10.6/scm.
The report also notes that India needs to encourage more competition in the CGD business.
Need for competition
It notes that the Petroleum and Natural Gas Regulatory Board (PNGRB) had issued draft guidelines in February 2016 to facilitate more competition. The Kotak report also bats for further liberalising the upstream gas-pricing policy. It argues that it will be logical to link the domestic price of gas with the landed cost of gas (LNG imports), as is the case with just about any other global commodity. Anthony Chickillo Womens JerseyShare This