Gas Distribution Stocks Gain On Notification Of Simplified Gas Tariffs

On Friday, shares of gas transmission companies rallied up to 19% after oil regulator Petroleum and Natural Gas Regulatory Board (PNGRB) notified of simplified regulations for unified gas transmission tariff structure.

Shares of Gujarat Gas Ltd rose as much as 19.5% to Rs 411.20, Mahanagar Gas Ltd was up 13%, Gujarat State Petronet Ltd gained over 10%, Gail (India) shares rose nearly 4%, Adani Gas was up 9% and shares of Indraprastha Gas rose 14%.

The surge comes after PNGRB unified gas pipeline tariff structure to make fuel more affordable for distant users and attract investment to build infrastructure for gas distribution.

The 'unified' tariff structure for over a dozen pipelines that form the National Gas Grid which will lead to a 20-30% rise in transportation charges paid by users near the source but a reduction for consumers in the hinterland, a PTI report said.

Analysts expect the new rules to help in long-term volume growth. "Companies like Gail and GSPL will benefit in terms of higher tariffs and profitability," said analysts at ICICI Securities in a note.

A report from Emkay Global said that the regulator has sweetened CGD open access by not considering the incumbent's existing OMC/dealer CNG stations as the shipper for allowing access. Draft provisions have also been removed for challenging infra exclusivities such as allowing the shipper to set up compressor facilities, cascade supplies and even pipelines in the event incumbent is not able to do so.

"Protection from the existing OMC CNG volume threat is a relief and near-term positive for CNG-heavy CGD players, though incoming competition would weigh on long-term growth and pricing power. Infra exclusivity protection is positive but technical disputes may crop up ahead. The unified tariff is mostly neutral," it said.