Rs 14,000 crore hit for power, fertiliser companies

Power generators and fertiliser makers have been caught at the wrong end of the stick by the Cabinet Committee on Economic Affairs’ (CCEA) decision to double the price of gas to $8.4 per million metric British thermal units (mmBtu) from April 1, 2014.

The move could increase their losses by around Rs 14,000 crore, according to industry estimates.

The CCEA said gas prices will be revised every quarter from April 1.

The move spells big gains for upstream companies such as the government-owned ONGC, Oil India, and the Mukesh Ambani-run Reliance Industries.

T K Anantha Kumar, director-finance, Oil India, told CNBC TV18 realisations at the gross level will increase by Rs 380 crore annually for the company, “which will encourage further investments”.

However, Gail, the gas transmission company, is expected to be negatively impacted.

“As much as 30% of Gail’s revenue comes  from petchem operations, which will be hit hard,” said an analyst with an international brokerage.

But this could give Gail a lever to negotiate with the government to get itself exempted from from the subsidy-sharing list.

The bill for fertiliser companies, however, will rise by Rs 8,000 crore.

“This is going to be a big negative for Iffco, Rashtriya Chemicals & Fertilisers, Deepak Fertilisers, Coromandel and Chambal,” said an analyst from a domestic brokerage, who did not wish to be cited.

And with the rupee hovering around Rs 60 per dollar, this loss could rise further to almost Rs 10,000 crore, experts said.

The worst hit, sources say, will be the power companies which will take a hit of about Rs 6,000 crore.

“This will increase the cost of generation for gas-based power plants from the current Rs 2.93 per kilowatt hour (kwH) to Rs 6.2 kwH. That renders gas-based power plants unviable,” said an industry source.

The power ministry had been requesting not to hike the price of gas beyond $5 per mmBtu.