Gas price hike will push revenue higher; eyeing 10-12% increase in FY23 transmission volume: GAIL

The government on Thursday more than doubled the price of domestically produced natural gas for six months’ period beginning April 1 on the back of a spike in global energy rates.

The price of gas from regulated fields of state-owned ONGC and Oil India Ltd rose to a record USD 6.10 per million British thermal unit (mmBtu) from the current USD 2.90, according to a notification issued by the oil ministry's Petroleum Planning and Analysis Cell (PPAC).

To understand its impact in depth, CNBC-TV18 spoke to MV Iyer, Director of Business Development and Marketing, GAIL.

Iyer said there has not been much of an impact of gas price hikes on the bottomline. He explained that domestic gas prices are more or less a pass through to the segments. However, on account of the increase in gas prices, he expects revenue to increase by 10 percent.

He said, "With a gas project, normally, there will be some positive impact on the turnover, because that normally comes from the price hike, however, on the other sectors because the margins are more or less fixed so the bottomline may not be much impacted by this. It is basically driven by the volume, so if the volumes increase per se, then only the bottomline comes up, but topline, we will see around 10 percent hike."

On profitability, he said that it is largely dependent on volume growth. He highlighted that the city gas distribution (CGD) sector requires roughly around 20 percent of the total volumes, whereas the fertiliser sector requires 40 percent. Iyer shared that the company is looking to increase its transmission volumes in FY23 by 10-12 percent.

"CGD Sector consumes around maybe 20 percent of the volume and fertilizer sector is roughly around 40 percent of the volume. In this year, we are likely to see around 7-8 million up from the last year on per day basis, and we expect around 10 to 12 percent increase next year also in FY23," he shared.

Iyer also mentioned that in October, gas prices will increase by around 10-15 percent. Additionally, he pointed out that Administered Pricing Mechanism (APM) for gas pricing is here to stay.

On being asked if the Russia-Ukraine war has impacted the business, he said that there’s been no direct impact on cargo supplies.

"We do have contract for gas supplies, but that is not directly from Russia, it is a subsidiary of a Russian company based out of Singapore. So, to that extent, we do not have a direct impact on the cargoes. However indirectly, the company being related to a Russian company, there are some talks of payment. For now, everything is normal, we are getting cargos from them and we are able to make payment," he said.

On bifurcation of the pipeline and the marketing business, Iyer said that it will take the company around 2-3 years to do so.