In another setback for gas regulator PNGRB (Petroleum & Natural Gas Regulatory Board), in its tariff dispute with GSPL, the appellate tribunal (APTEL) has overwhelmingly ruled in favour of GSPL.
APTEL has said that PNGRB’s tariff order had a fatal deficiency, and has set aside the tariff order. Highlighting that a 12% post-tax return on capital employed (as permitted in regulations) is in the interest of all stakeholders, it has asked PNGRB to re-work the tariff orders.
We think PNGRB will be more liberal now in re-working the tariff, and believe 10-15% tariff upsides are easily likely for both GAIL/GSPL. With APTEL emphasising that a 12% post-tax ROCE is important and in the interest of all stakeholders, we think PNGRB will be forced to re-look at the entire tariff setting exercise, and will likely be more liberal.
While it is too early to determine the extent of tariff increases, we think overall 10-15% tariff increases are like for both GAIL and GSPL. On our estimates, a 10% increase in tariff would increase: GSPL’s FY16F EPS and fair value by 12-14%; and GAIL’s FY16F EPS and fair value by 6-7%.
In addition, there will likely be retroactive gains, as the re-worked tariff orders will apply from the date the existing orders were made applicable.
For several of GAIL’s key pipelines, current provisional tariff orders were applied from Nov-2008. Thus, retroactive gains will be for a longer period and likely higher.
By Nomura
