30 lakh CNG vehicle owners in India losing out on benefits of lower gas prices

Despite gas prices falling significantly in the past few months, CNG distribution companies in India, which thus far have monopolistic control over their operating  markets, have chosen not to pass on its benefits in entirety to the end consumer.

For example, Mumbai-based Mahanagar Gas (MGL) reported operating profit margin of 40.28 percent in Q2 FY2021. In comparison, the margins were 28.83 percent during Q1 FY2021 and 32.4 percent during Q4 FY2020.  One of the major reasons for the sudden sequential spike in margins has been the declining input gas prices which did not get fully passed on at the retail level. The company has about 256 CNG stations at present.

Likewise, Indraprastha Gas (IGL) which has around 555 CNG stations in and around Delhi, reported operating profit margins of  28.26 percent during Q2 FY2021 compared to 13.07 percent during Q1 FY2021 and 24.27 percent during Q4 FY2020.

Gujarat Gas, which operates around 400 CNG stations, too saw a similar rise in its margins. The operating profit margin during Q2 FY2021 stood at 28.63 percent compared to  17.15 percent in Q1 FY2021 and 16 percent in Q4FY2020.

Gas prices hit rock bottom
Gas prices have hit rock bottom as the Government reduced the price of locally produced gas to $1.79 per MMBtu from $2.39 earlier. The revision which became effective beginning October 2020 is the third straight reduction in gas prices in India over the past one year and also the lowest in over a decade. The new price will be effective till March 31, 2021 and is in line with the fall in global gas indices over the reference period.

The Government has also announced the ceiling on price for gas produced from deep water, ultra-deep water, high temperature and high-pressure fields at $4.06 per MMBtu for H2 FY2021 which is 27.6% lower than the price ceiling of $5.61 per MMBtu for H1 FY2021.

Though the retail CNG prices did come down after the announcement, but it has been miniscule in comparison to the drop in input costs.

CNG, which is considered to be environmentally safer than conventional fuels, in particular, continues to benefit from the favourable price differential as petrol and diesel are taxed highly. It is highly unlikely that the trend may change in near future as taxes collected on petrol and diesel form a significant share of revenues for both the central and state government. 

India has about 2,290 CNG stations as on August 1, 2020 and total CNG consumption in FY2020 was 3.247 million tonnes. The country currently has around 30 lakh CNG vehicles, data available with the government reveals.

Competition may bring in the change
The Petroleum & Natural Gas Regulatory Board (PNGRB) has issued a draft regulation in line with the Government’s efforts of making India a gas-based economy. Though the likes of MGL and IGL are continuing to oppose the move by PNGRB, the competition once allowed may force the incumbents to be more price conscious in future.