IGL says its overall costs will fall 18% after Kirit Parikh panel recommendations are accepted

After three months of reviewing gas prices, the gas pricing formula, and getting submissions from various stakeholders, the Kirit Parikh committee submitted their report to the government on Wednesday.

In a conversation with CNBC-TV18, Kirit Parikh said he recommended a floor of $4 for legacy gas fields and suggested that a cap of $6.50/mmBtu be put on gas prices sold by ONGC and Oil India.

Reacting to the recommendations, Pawan Kumar, Director-Commercial of IGL said that if Kirit Parikh panel recommendations are approved, it will be a welcome move and that it will reduce costs to $7.98 per mmBtu.

He said, “The recommendations of the Kirit Parikh committee if there are approved by the government, it is a welcome move to the entire CGD sector. The recommendation is that the input gas cost of APM gas should come down by around 24 percent. But if we see the RLNG and spot component also for IGL the net reduction will be around 18 percent.”

The approval should come in a month according to industry experts. “It will go to cabinet, will be forwarded by ministry then the cabinet will approve. We expect that by January I think something should come,” Kumar elaborated.

Meanwhile, Probal Sen, Energy Analyst at ICICI Securities believes that the immediate reduction in cost is welcome as it provides stability to the pricing regime, which has been missing from both consumers as well as CGD company's perspectives.

Also, the minimum floor of $4 is useful from ONGC and Oil India's perspective.

“If you look at it, they have said in their earnings calls earlier that their cost of production for the legacy fields is somewhere around $3-$3.50 dollars. So at least having that comfort that your cost of production won't be breached, which has happened in the past because of anomalies in the formula. I think that is a comfort factor for the upstream companies as well,” elaborated Sen.

Sen added that the 3-4 years window given for liberalisation in gas pricing is reasonable and that kind of leeway is very important.