Petronet-LNG hit hardest by R-LNG subsidy

Vol 18, PW 20 (04 Jun 15) Midstream & Downstream

It’s for the greater good of the country so hopefully Petronet-LNG, GAIL, Gujarat State Petronet and Reliance Gas Transportation Infrastructure won’t mind being bled dry to support Narendra Modi’s R-LNG subsidy scheme to revive 8100-MW of gas-fired power generation capacity.

The power ministry instructed these companies in April to absorb sharp cuts in regasification, gas transmission and marketing charges in line with a scheme where 15 gas-fired power stations began receiving 10m cm/d of subsidised R-LNG on June 1 from Dahej. Since LNG prices are out of the government’s control it wants gas sellers and transmitters to absorb the cost so power companies can generate power at a viable rate of between Rs4.1 and 5.50/unit for cost-conscious consumers.

Petronet-LNG will be the worst hit, forced to cut regasification charges by 50% from $0.70/mmbtu to $0.35/mmbtu for the first stage of the scheme until September 30. Petronet-LNG is already suffering as revenue from January to March 2015 fell 31.3% to Rs7162cr ($1bn) while operating earnings crashed by 42.8% to Rs221cr ($35m), according to an industry source.

Similarly GAIL, Gujarat Petronet and Reliance have been asked to reduce their pipeline tariffs by 50% when transporting the subsidised R-LNG. All three have different tariffs for different zones.

“But even if you consider an average transmission tariff of $1/mmbtu," says a source, "a 50% cut leaves the transmission companies with just $0.50/mmbtu."