New Delhi: The government has capped the subsidy sharing burden of state-owned GAIL (India) Ltd, India’s largest gas transmission and marketing company, at 1,400 crore for the current financial year, GAIL chairman and managing director B.C. Tripathi said on Friday.

GAIL’s “subsidy burden share" on account of under-recovery—or the revenue loss for government-owned oil marketing firms from selling fuel below cost—was 2,687 crore for the last fiscal year.

Upstream companies such as Oil and Natural Gas Corp. Ltd, Oil India Ltd and GAIL pay compensation to state-owned oil retailers and generally share a third of the subsidy burden.

“We have received communication from ministry of petroleum and natural gas that our subsidy share will be capped at 1,400 crore for the current year," Tripathi told reporters. “We have already shared this amount. This will result in no payments in the subsequent quarters."

Since many petroleum products are subsidized, the losses suffered by state-owned oil marketers as a result of selling fuel below cost is expected to reach 1.8 trillion in the current financial year compared with 1.61 trillion in the preceding year. “We have been communicated the cap for the 2013-14 financial year. We don’t know about 2014-15. GAIL shouldn’t be in the ambit of subsidy because we don’t produce oil or gas," added Tripathi.

The government has set up a committee headed by Kirit Parikh, former member (energy) in the Planning Commission, to resolve the vexed issue of pricing diesel, domestic cooking gas and subsidized kerosene.

In another development, GAIL’s net profit in the September quarter declined by 7% from a year earlier to 916 crore, while its revenue increased by 23% to 13,944 crore. GAIL’s revenue was 11,361 crore in the corresponding quarter last fiscal year and its net profit was 985 crore.

“The increase in revenue was due to the high prices of the liquified natural gas (LNG), more spot cargoes and forex gains. Also better petrochemical prices. The reason why profit after tax came down (was) due to the loss in the liquified petroleum gas segment of 377 crore due to a subsidy payout of 700 crore," explained Tripathi.

GAIL’s net profit in the June quarter declined by 29% from a year earlier to 808 crore while revenue increased by 16% to 12,856 crore.

While gas supply from Reliance Industries Ltd’s D6 block in the Krishna-Godavari basin had stopped, the subsidy outgo remained the same for GAIL. Also, there has been less production from Panna Mukta Tapti fields. There has also been a reduction in the transmission volume to 95 million metric standard cubic metre per day (mmscmd) from 106 mmscmd in the corresponding quarter last fiscal.

“Looking ahead, our concerns on lower utilization of GAIL’s pipelines remain," Bhavesh Chauhan, senior research analyst at Angel Broking Pvt. Ltd, said in an emailed statement.

GAIL has already sourced 11 cargoes in the first half of the current year. Of these nine were spot cargoes. For the remaining period, it plans to source 19 cargoes, of which one has already arrived. While 10 cargoes have been tied up, eight will be sourced from the spot market.

Meanwhile, GAIL has reduced its stake in China Gas Holdings Ltd from 4.7% to 4.2% for 385 crore.

GAIL, one of the promoters of Ratnagiri Gas and Power Pvt. Ltd (RGPPL), said the Maharashtra State Electricity Board owes it 750 crore. The integrated 1,967.04 megawatts power project has been shut down due to non-supply of gas and the lenders have raised concern over the servicing of the loan.

“The annual loan servicing amount is 1200 crore; with the total debt of around 8000 crore," said Prabhat Singh, director of marketing at GAIL.

State-run NTPC Ltd and GAIL own 32.47% each in the utility. The Maharashtra government has a 16.94% stake, while the rest is owned by public sector banks and financial institutions.

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