Kirit Parikh panel recommendations provide major relief for natural gas sector

New Delhi: The draft recommendations of theKirit Parikh Committeeprovide a material relief to thenatural gas sectorwhich has seen the macros turn deeply unfavourable over the last six months, according to a new report.

The draft recommendations of the committee imply current domestic gas prices for priority segment will be capped at $6.5-7 per mmbtu, as against current prices at GCV basis of $8.6 per mmbtu and a delivered price on NCV of $9.6 per mmbtu; annual escalation of $0.5 per mmbtu for the next few years; and a gradual move to market pricing of gas in 3-4 years.

Overall, the $2 per mmbtu reduction in 2023-24(E) effective gas cost for priority sector has Rs 7.7/8/1.2 per kg implication for CNG and Rs 4.9/5/0.8 per scm implication for the domestic segment of IGL, MGL and GGL.

“This can either improve margins to the extent that some of this benefit is retained or improve price competitiveness vs petrol/diesel/LPG if all reduction is passed on. Any or both outcomes are material positives for the threecity gas distributioncompanies,” research firm ICICI Securities said.

The draft recommendations follow the recent amendments made to gas transmission tariffs and provide relief for the gas companies.

“We believe in addition to the absolute relief of $2 per mmbtu in FY24E (vs Oct 2022 price), the pricing direction announced for the next few years (escalation of $0.5/mmbtu annually) provides the much needed visibility and clarity on priority sector gas costs for CGDs,” the report said.

The Parikh committee recommendations also provide scope to tweak the pricing strategy to end consumers, depending on alternate fuel pricing and customer acceptance.

Given the fact that 80 per cent and 87 per cent of the overall volumes of IGL and MGL, respectively, come via domestic and CNG segments, the extent of benefit for the two players will be larger as compared to GGL which only derives 36 per cent volumes from priority segments.