Shares of city gas distributers and producers such as GAIL (India) Ltd., Indraprastha Gas Ltd. and Gujarat Gas Ltd. rose during early trading on Monday after a government body proposed regulatory changes on transmission pipeline tariffs and zonal rules.
The Petroleum and Natural Gas Regulatory Board has proposed the tariff computation on the price of gas would be based on contracted prices for domestic or LNG.
The amendment proposes to move from three zonal tariffs to two, with zone one tariffs applicable for CNG and domestic PNG. Customers beyond the first 300 km of the length of the pipeline will be simply part of zone two.
Pipeline entities will be permitted to retain 50% of incremental revenues, if their actual volumes exceed the normative threshold of 75% capacity utilisation, as per the petroleum board's proposals.
Gail share price jumped 6.5% to nearly a three-month high of Rs 186.4 apiece.
Indraprastha Gas advanced 5.4%. Gujarat Gas and IRM Energy Ltd. added over 2%.
Analysts said regulatory changes could lower operating costs for city gas distribution companies and allow higher tariffs for producers.
Morgan Stanley said the changes, if implemented, would accelerate India's natural gas adoption from 6% of energy mix to 15% penetration.
Citi initiated a 90-day 'Positive Catalyst Watches' on GAIL India and Gujarat State Petronet Ltd. It has raised the target price for GAIL from Rs 260 to Rs 265 and on GSPL to Rs 370.
According to CLSA, the clearest winner of tweaks in zonal rules is likely to be Indraprastha Gas Ltd. and city gas entities in the northern and eastern regions, as they would fall under the highest tariff zone — zone three —currently.
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