IGL, MGL shares nosedive: Is CNG price hike on cards? Govt wants cost justification

IGL shares dropped over 18% to ₹327.90, while MGL fell more than 14% to ₹1,133.

Both companies have flagged concerns about their financial performance due to reduced supplies.

City gas retailers rely on domestic natural gas, priced at $6.5 per million British thermal units (mmBtu), to provide affordable CNG and piped cooking gas to households. The shortfall will now have to be met by sourcing costlier alternatives, such as gas from newer wells, which is priced $2 higher, or through imported liquefied natural gas (LNG).

Natural gas from older fields, known as APM gas, is allocated to city gas distributors for priority segments, including CNG for transport and piped natural gas for households. However, production from these legacy fields has been declining by around 5% annually due to natural depletion.

Bridging the gap with higher-priced alternatives could lead to CNG prices rising by ₹4-6 per kg, reported PTI quoting sources in city gas retailers.

However, government officials remain unconvinced about the need for a price hike.

Officials in the ministry of petroleum and natural gas feel the retailers operate on “hefty” margins and can easily absorb the additional cost they may have to incur on replacing the lost volumes with slighted higher priced gas from new wells or imported LNG, reported PTI.

Officials said the government is not against companies earning profits but if they want low-priced input (gas from old fields) then they should also declare the cost breakup of the final product (CNG), according to the report.

“There cannot be a situation where you insist on getting low cost input but will not reveal the buildup to the final product price,” another official said. “The profitability numbers show they have been operating at huge margins. Indian Oil Corporation, which is also a retailer, had its best ever profit of Rs 39,617 crore on a revenue of Rs 8.71 lakh crore, implying a margin of 4.5 per cent.”