Gail wants 2.5% margin on gas transmission

In an attempt to recover some of its marketing costs, Gail (India) Ltd has asked the petroleum ministry to allow it a marketing margin of 2.5 per cent on the consumer price of gas transported by it.

At present, Gail gets only gets the transmission cost of the gas supplied by it through the Hazira-Bijapur-Jagdishpur (HBJ) and other regional pipelines. The gas is mainly purchased by it from Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL).

Even if the ministry agrees to allow it a marketing margin of 1 per cent, Gail's annual profits are expected to go up by Rs 67 crore.

Gail has written to the oil ministry that it has to bear the entire marketing cost of the gas, which includes the cost of carrying an inventory of around 70 million cubic metres of gas in its pipelines at any given time, maintaining marketing offices for addressing consumer concerns, bad debts and take-or-pay liabilities.

According to Gail, gas companies globally are allowed a marketing margin of around 2.5 per cent and this should be applicable to it too.

Gail said a marketing margin of 2.5 per cent was allowed on the sale of the Ravva Satellite gas, which was discovered after the dismantling of the administered pricing mechanism (APM) in the oil sector. The gas is now being sold at market-driven prices.

Also, in the case of LNG being imported by Petronet LNG, the government has agreed to allow a marketing margin of 10 cents per million British thermal units (BTU).

"Under the current deregulated scenario, the proposed regulator will also ask Gail to segregate marketing from its core business of gas transport. In such a situation, the unbundled business activities of gas marketing will be commercially viable only if a marketing margin is allowed to Gail," a senior Gail official said.