GAIL can't levy marketing margin on gas to IPCL

The government has ruled that Indian Petrochemicals Corporation Ltd (IPCL) will not have to pay marketing margin on the gas it buys from GAIL ( India). The order comes after GAIL threatened to discontinue supply until marketing margins were paid.

In response, IPCL had approached the petroleum ministry, saying GAIL was unjustified in demanding marketing margin.

GAIL was of the view that only those consumers qualifying to be under the administered-price mechanism (power and fertiliser sector) were exempt from the levy. GAIL's argument was that IPCL was paying a market-determined price to other suppliers, while GAIL had to continue charging the administered price.

The ministry, after examining the issue, said the original gas pricing order of June 2006 did not envisage charging of a marketing margin to any category of consumers. The ministry communication to GAIL said no margin above the transportation tariff could be charged.

The gas pricing order of 2005 had only envisaged a dual pricing regime, where consumers in the power and the fertiliser sectors and small consumers would be subject to an administered price of Rs 3,200 per million cubic metres.

"In addition, GAIL did not engage in any new marketing efforts since June vis-a-vis any of these consumers. Moreover, GAIL performs transportation and distribution of gas as a bundled activity," the ministry said.

Gail had asked IPCL to pay a marketing margin of Rs 222 per thousand cubic meters on the administered price, which it was supplying to IPCL's plants at Baroda, Gandhar (Gujarat) and Nagathone (Maharashtra).

Gail had last month said, "IPCL has not signed the revised gas supply agreement after the government pricing order which came into effect from July 1, 2005".