Price hike by GAIL hits Regency operations

The increase in the price of natural gas supplied by the Gas Authority of India Ltd (GAIL) has adversely affected the operations of Regency Ceramics Ltd (RCL), the only major industry that is located in the backward area of Yanam in the Union Territory of Pondicherry.

"The price hike results in an additional expenditure of Rs 45 lakh per month. At this rate, the operations of Regency will not be viable," RCL chairman and managing director, G N Naidu, told Business Standard.

He expressed apprehensions that despite RCL taking various measures of cost control to reduce the adverse impact of hike in prices, there could be situations of retrenchment of workers. The company, which produces ceramic tiles, has a work force of 2,500 people.

The Union government had issued a notification on June 20, 2005 stating that the supply of gas to industries other than fertiliser and power units will be charged at the administered price of Rs 3,200 per 1000 SCM up to 50,000 SCM per day (SMCD) and the gas supplied over 50,000 SMCD will be charged at market related price.

Following this, with effect from July 1, GAIL has increased the price of natural gas supplied to Regency from Rs 3,098 per 1000 SCM to Rs 5,566 per 1000 SCM.

Regency was allotted 1.1 lakh SMCD of natural gas on fall back arrangement from Krishna-Godavari basin in addition to 35,000 SCMD on firm basis.

However, gas supply to the industry was restricted 70,000 SCMD since last year. Consequently, there was a pressure on RCL margins and the company had incurred a loss of Rs 1.04 crore last fiscal as against a net profit of Rs 16.24 crore registered during 2003-04.

Given this situation, Naidu is planning to approach the ministry of petroleum and natural gas to allocate additional quantity of at least 40,000 SCMD of natural gas.

He also wants the government to treat RCL on par with power and fertiliser units keeping in view its employment potential and fix the gas charges at APM level.