Changing the rules of the game on a retrospective basis seems to be in vogue. Earlier the government changed amendments with retrospective implementation to tax overseas transfer of assets, now the Petroleum and Natural Gas Regulatory Board (PNGRB) has changed prices at which compressed natural gas (CNG) and piped natural gas (PNG) are to be sold with a retrospective effect.
PNGRB on Monday passed an order for cutting network tariff by 64% and compensation tariff by 60% in the Delhi region.
Indraprastha Gas Ltd (IGL), which has a monopoly in the region, has been severely impacted, both financially as well as in its market value.
The stock was hammered down nearly 46% in early trades, but currently changes hand at Rs 233.90, down 32%. Financially the company’s profit is expected to be impacted by nearly 75%.
Post this year’s budget both the investing and businesses community were up in arms demanding for a clearer long-term policy environment. Their hopes are in tatters with this act of PNGRB.
Domestic and foreign investors account for nearly 43.6% of IGL’s holding. The sharp drop in share prices has resulted in market capitalisation of the company falling by Rs 1,120 crore resulting in institution holders losing nearly Rs 500 crore in a day.
Media reports says that PNGRB has asked IGL to refund the extra amount charged, based on the regulators calculation.
Accumulated profit of IGL since 2007-08 till the first three quarters of 2011-12 is Rs 1,049 crore. Net worth of the IGL as of March 2011 stood at Rs 1,003.86 crore. Reports say that the company will have to refund an amount of over Rs 1,000 crore.
Analysts have a much higher figure. HSBC believes the excess tariff charged will be in the range of Rs 1,600 crore.
Apart from the fact that refunding the amount will destroy IGL, it will have a serious impact on the sector as PNGRB seem to be extremely aggressive with the tariff rates.
Collateral damage will be on Gujarat Gas, whose valuation will be affected, as the company is planning to sell its business.
