PNGRB member explains reasons behind the sharp cut in tariffs for GSPL

AK Tiwari, a member of the Petroleum and Natural Gas Regulatory Board (PNGRB) explained the reasons why the tariff revision for Gujarat State Petronet’s (GSPL) key HP Pipeline network is an adjustment, not a cut.

GSPL got a better tariff earlier, and that has been adjusted. Based on volumes, the tariff has been adjusted. So we have given 12% post-tax Internal Rate of Return (IRR), as per the regulation. So there is no cut per se in the tariff, it is only adjustment.

IRR is a financial metric used to estimate the profitability of potential investments.

GSPL’s tariffs have been slashed by 47% to ₹34 per Metric Million British Thermal Unit (MMBtu).

GSPL was hoping for a revised tariff of ₹50.8 per MMBtu, while the Street was factoring in a cut of about 10% to 15%.

Tiwari explained that the GSPL’s projection of 26 million metric standard cubic metres per day (mmscmd) up to 2031 seems like an underestimation.

Given the company’s progress, he believes their volumes will consistently exceed 31 mmscmd, which has been factored in while making the tariff revision.

He does not see a reason for renegotiation with GSPL on volumes, pointing out that over the past decade GSPL has consistently seen volumes over 31 mmscmd, with last year’s volume surpassing 34 mmscmd.

He also discussed the potential tariff revision for Gas Authority of India (GAIL) in June.

Shares of GSPL are locked in a 20% lower circuit post this news.

The current market capitalization of GSPL is ₹17,056.11 crore.