The tariff for the High Pressure Gas grid of GSPL has been reduced to Rs.18.10/MMBTU (for 01.05.2024 onwards) from Rs. 34/MMBTU (for 2018 to 31.01.2024). This is a sharp reduction of around 46% from previous tariff. The company had proposed a tariff of Rs. 50.77/MMBTU and the final approved tariff is Rs. 18.10/MMBTU by PNGRB. Historically also the approved tariff by PNGRB has been lower than the submitted tariff by GSPL.
This reduction can lead to big drop in standalone revenues and profitability of GSPL.
The order also mentions a possible revision in tariff next year if actual volume is very different from the expected volume considered by PNGRB (31.67 MMSCMD). The company while proposing 50.77/MMBTU has considered 26 MMSCMD.
This is a serious setback. Even if tariff gets revised this action from PNGRB will remain an overhang which means stock will take a very long time to recover.
GSPL’s expectation was ~Rs 50/MMBTU. However, PNGRB has proposed ~ INR 18/MMBTU which is even lower than the current tariff of Rs 34/MMBTU. Hence, the reason for steep fall in stock price
My understanding in that tariff decline by ~50% (Rs 34 to Rs18) will completely wipe out profitibility of GSPL.
From PNGRB perspective, its clear that their incentive to provide customer services at cheapest tariffs, and as long as GSPL survives/does not break , they are fine.
Something that I am trying to understand here:
What incentive do GSPL management has to fight with low tariff order by PNGRB? My understanding is that , with largely fixed compensation, enhancing profitibility of GSPL will not be driving force for GSPL management.
The promoter of GSPL is again governed by government of Gujarat, with hardly any incentive to drive profitibility of GSPL. As long as GSPL continue to discharge its tasks (maintining pipepline) and does not break, the promoter should be fine.
So, who is going to fight any adverse impact on GSPL when promoter and management do not have any incentive to do so. Is there any other influential shareholder (Institutional shareholder) who has high stake in GSPL and hence the incentive to influence management and government and take steps to fight PNGRB orders?
Regulation risk is always there in such companies. PSE companies don’t care much about investors unless they want to divest, that’s the only time share price matters to them.
