IGL, MGL To Pass Higher Costs On To Customers As GAIL Cuts APM Gas Allocation

Indraprastha Gas Ltd. and Mahanagar Gas Ltd. said that Gail (India) Ltd., the nodal agency for distribution of gas under the administered price mechanism or APM, has reduced its allocation to both the companies.

The supply has been slashed by 21% for IGL and 20% for MGL, respectively with effect from Oct. 16.

The decision will impact the profitability of the companies as their overall procurement cost of natural gas will go up. However, to minimise the impact, the city gas distribution companies will pass on the higher cost to consumers, Ashu Singhal, managing director of MGL, told NDTV Profit.

“We are assessing the impact and trying to manage the portfolio. Whatever is not manageable, we will pass on to the consumers,” Singhal said.

The details related to the CNG price hike may come in the next couple of days.

CGD firms get the domestic gas allocation to meet their CNG sales volumes at an administered price fixed by the government. The pricing is comparatively lower compared to the imported LNG. At present, the price of APM gas is $6.5/mmbtu compared with $11-$12/mmBtu of LNG. The APM price is revised every 15 days.

IGL, in a statement, said the reduction of APM gas supply by 21% will "have an adverse impact on profitability". The company is in discussion with key stakeholders to minimize the impact,” it added.

Notably, IGL has reported a total sales volume of 8.4 million standard cubic meters of gas per day and aims to achieve a sales volume of around 9.5 MMSCMD by the end of fiscal 2025. IGL's total CNG sales volumes stood at 6.3 MMSCMD which was 74.5% of the total sales.

MGL reported a total sales volume of 3.6 MMSCMD and CNG sales volume of 2.6 MMSCMD which is 71.9% of the total sales.

On Thursday, shares of IGL closed 2.53% lower at Rs 504.4 apiece, whereas MGL's scrip declined by 1.46% to Rs 1760.65 on the BSE. In comparison, the benchmark Sensex declined by 0.61%.