Government hikes natural gas price sold to non-priority sectors by 10%-Angel Broking

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The government has approved a 10% hike in price of natural gas that ONGC and
Oil India sell to consumers in non-priority sectors such as steel and petrochemicals.
Effective December 1, 2010, ONGC and Oil India have been allowed to charge up to
US$5.25/mmbtu for 7–8mmscmd of gas that is sold to the non-power and non-fertiliser
sectors.


The rates set would be excluding cess, transportation charge, marketing margin, service
charge and taxes. Natural gas produced by ONGC and Oil India from fields given to
them on nomination basis is sold at government-controlled price, called APM rate. In June
2010, APM price for priority sectors such as power and fertiliser was more than doubled to
US $4.2/mmbtu, but users in other sectors continued to get fuel at 2005 price of up to
US $4.75/mmbtu. In 2005, the government had decided that APM gas will be sold only to
power, fertiliser and small users. But some non-priority users not connected to any other
source were allowed to continue using the gas subject to they paying a market price. The
anomaly has now been corrected by raising the price for non-priority sectors.

The decision would result in ONGC’s revenue going up by about `200cr annually and
bottom line increasing by around `135cr annually. Though the addition to the bottom line
is quite small, this is a step forward towards charging APM gas at market price to all
consumers. We continue to maintain our Accumulate rating on ONGC with a Target Price
of `1,391.