Pricing of Products and Services in GAIL

by: Pricing Department

Presentation Flow

Products & Services at a Glance Natural Gas Pricing Liquid Hydrocarbon Pricing Polymer Pricing Transportation Tariff: Natural Gas Transportation Tariff: LPG City Gas Distribution Pricing

Pricing Department

July 29, 2012

Products at a Glance

Natural Gas

APM, Market Price Gas (e.g. Panna-Mukta &Tapti, Ravva, RIL) R-LNG Propane, LPG, SBPS, Pentane, MFO, Hydrogenated C4 Mix LPG, Propylene, Naphtha, Slop Oil

Liquid Hydrocarbons

Petrochemical

HDPE grades, LLDPE grades PS, GS, Machine Waste, Butene-1, Spent Alumina, Powder Waste , Polymer fines, LP Wax
Natural Gas: through major trunk lines like HVJ/DVPL/GREP, DUPL/DPPL, etc. and through Regional Pipeline Networks, Spur Lines & Dedicated Pipe Lines. LPG: through cross-country major trunk lines like JLPL, and VSPL.

Transportation

Pricing Department

July 29, 2012

Natural Gas Pricing

Administered Price Mechanism (APM)

Government mandates the price of Natural Gas sold to customers under APM regime. Ministry of Petroleum & Natural Gas issues Circulars from time to time for revision in Price. APM Gas price was revised vide circular dated 20.06.2005 & dated 05.06.2006 of MoP&NG. Present APM Gas Price are as follows:
Consumer Segment Power and Fertilizer

Sr. No.

Type of Gas

Location Maharashtra, K.G. & Gujarat, & HVJ/DVPL Cauvery Basin

Rs.3,200/MSCM Rs.3,840/MSCM $4.75/MMBTU
Pricing Department

NorthEast Rs.1,920/ MSCM

1. APM Price City Gas & Consumers having allocations up to 0.05 MMSCMD Non-APM Consumers other than at 2. Price Sr. No.1
4

Rs.2,304/ MSCM
Rs.3,200/ MSCM

$3.5/MMBTU
July 29, 2012

Natural Gas Pricing

continued

Market Priced Gas

PMT Gas: Gas produced from Panna, Mukta & Tapti fields by PMTJV is purchased by GAIL as per rate prevalent under Production Sharing Contract. RAVVA 1 & Satellite: Gas produced from RAVVA fields by RAVVA Consortium is purchased by GAIL as per rate prevalent under Production Sharing Contract.
NorthEast N/A
N/A N/A

Location Source Unit Maharashtra, Gujarat, K. G. & & HVJ/DVPL Cauvery Basin Panna Mukta USD/MMBTU 5.73 N/A Tapti Ravva - 1 USD/MMBTU USD/MMBTU 5.57 N/A N/A 3.50

Ravva-Satellite
5

USD/MMBTU

N/A
Pricing Department

4.30
July 29, 2012

N/A

Natural Gas Pricing

continued

RIL

GAIL procures gas from Reliance Industries Limited for the various LPG units along HVJ/DVPL and DUPL/DPPL. Current price of RIL is based on formula approved by EGoM and is currently $4.205/MMBTU. This price is effective for a period of 5 years. Petronet LNG Limited (PLL), Dahej, Gujarat is sourcing R-LNG to the tune of 5 MMTPA from Ras Gas, Qatar under a long term contract in which GAILs share in 60%. As per MoP&NG circular dated 06.03.2007, R-LNG procured under long term contracts shall be pooled to arrive at unified price applicable to all the consumers. R-LNG is also sourced from PLL & Hazira LNG Private Limited (HLPL), Hazira, Gujarat on spot basis whose price depends upon international demand & supply of LNG Cargoes. GAIL also procures LNG and gets it re-gasified from PLL terminal at Dahej. Present price of R-LNG is $4.6578/MMBTU excluding Re-gasification Charges and other levies and duties.
Pricing Department July 29, 2012

R-LNG

Liquid Hydrocarbon Pricing

Pricing of LHC products are market driven except Domestic LPG

Product Pricing Basis Import Parity Price is calculated by IOCL and provided to GAIL. FoB Prices of Saudi CP price of Propane & Butane are being taken as benchmark prices in 60:40 ratio to derive the delivered prices of LPG at each plant. Propane price is indexed to Bulk LPG declared price of Oil Marketing Companies (OMCs). Revision in price takes place based on demand-supply situation, prices prevalent in market & inventory situation at different plants.

Sr. No.

1.

LPG

2.

Propane

3.

Prices of SBPS & Pentane are indexed to BPCL Naphtha ExSBPS & Mumbai Prices. Revision in price takes place based on Pentane demand-supply situation, prices prevalent in market & inventory situation at different plants.
Pricing Department July 29, 2012

Liquid Hydrocarbon Pricing

Sr. No. 4. Product Pricing Basis

continued

MFO Vaghodia is indexed to BPCL Naphtha ExMFO at Pata Mumbai Prices & MFO Pata is indexed to furnace oil & Vaghodia of HPCL/BPCL Ex-Delhi prices.

5. 6. 7.

Hydrogenate C4 Mix price is indexed to Domestic LPG Pata prices. d C4 Mix LPG
Propylene Slop Oil Propylene price is indexed to IOCL Mathura Propylene price. Presently it is being sold at Rs.15500/MT, price is being fixed depending upon production/demand in lieu of limited market of Slop Oil.

Pricing Department

July 29, 2012

Liquid Hydrocarbon Pricing

Sr. No. 8. Product Naphtha Pricing Basis

continued

Policy 1: OMCs least landed price minus 450 for customers in power & fertilizer sector. OMCs least landed price minus 400 for customers in other sectors

Policy 2: Naphtha FoB Platts Arab Gulf Price minus 500 for customers not providing documentary evidence from Vijaipur plant

Pricing Department

July 29, 2012

Petrochemical Pricing

Petrochemical Prices are fixed on Import Parity basis. The CFR prices South East Asia and Indian main port prices for the three grades LLDPE Film, HDPE Film and HDPE Injection are considered as per ICISLOR (ICIS Pricing) of the last Friday of previous month. The CFR prices have to be worked out for four ports i.e., Mumbai, Haldia, Kochi and Chennai by working out back calculation for FOB prices of Dammam for South East Asia and Indian main port. The average of both the FOB prices will be considered as FOB price Ex-Dammam and CFR price for all the four Indian ports worked out by adding the applicable freights. The following amounts are added for CFR prices worked out for all four ports:
(a) Towards Quantity Discount Rs. 900/(b) Towards Handling charges Rs. 1,200/(c) Towards Cash Discount Rs. 600/Total Rs.2,700/10 Pricing Department July 29, 2012

Petrochemical Pricing

continued

Ex-works - Pata prices to various pricing zones are to be fixed considering freight differential from the nearest port to the location. Prices of 3 main grades are calculated as per the above methodology and prices of rest of the grades are derived by adding difference between the cost of production between the main grades and other grades. After fixing the IPP price, Prices are reviewed by Marketing Department and they forward the adjustments to be made to IPP prices based on price of competitor in the market in order to calculate the proposed prices for management approval. Prices are being worked out for 63 pricing Zones/213 locations. Stock Point Prices are calculated based on proposed prices for Consignment Stockist (CS) points.
11 Pricing Department July 29, 2012

Petrochemical Pricing

continued

Derivation of Proposed Price from Co-producer Price:

Co-producer ex-work price is taken from which Cash discount, Location Discount, Regional Discount are subtracted and applicable duties and taxes are levied & finally freight is added to obtain Co-producer delivered price. From the Delivered Price so obtained Freight from location to Pata is subtracted, applicable duty is subtracted, cash discount is added and any premium or discount over & above co-producer price is added to have Proposed GAILs Ex-work Price.

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Pricing Department

July 29, 2012

Petrochemical Pricing

continued

Discounts

Pre-Excise Discounts

Cash Discount
Location Discount Monthly Quantity Discount (All grades) Special Monthly Quantity Discount (RM - R35A, R35U, IM - I50A, I60A, I60U, BM B52A, B63A, B55HM, Pipe, Sheathing E52A, E52U) Additional Monthly Quantity Discount (For Raffia) Quarterly Quantity Discount (For Raffia) Trade Discount (E52U, P54) Special Trade Discount (For Raffia)
Pricing Department July 29, 2012

Post Excise Discounts

13

Petrochemical Pricing

continued

Pricing of By-Products
Product PS GS MACHINE WASTE G-PE-SHRED POWDER WASTE POLYMER FINES BUTENE-1 SPENT ALUMINA Indexation/Price (Rs./MT) I50A180A Kanpur price 10000 I50A180A Kanpur price 13000 75% OF I50A180A Kanpur price MACHINE WASTE + 4000 72% OF I50A180A Kanpur price 70% OF I50A180A Kanpur price LLDPE Grade Price Presently priced at Rs.7750/MT, limited market 1. 2. 3. 4. 5. 6. 7. 8.

Sr. No.

14

Pricing Department

July 29, 2012

Transportation Tariff: Natural Gas

Natural Gas Pipeline Networks in GAIL

15

HVJ/GREP/DVPL DUPL/DPPL Gujarat Networks K. G. Basin Networks NCR Network Cauvery Basin Network Mumbai Network Agartala Network Rajasthan Network Assam Network
Pricing Department July 29, 2012

Transportation Tariff: Natural Gas

continued

Tariff Commission had recommended the tariff for following Major Pipelines calculated on Cost of Service Methodology which was approved by MoP&NG, the same was applicable till March 31, 2009:

HVJ/DVPL/GREP
K.G. Basin: Kakinada-Tatipaka-Kouvur & Tatipaka-Kondapalli Agra-Ferozabad: Spur Line Charge & City Distribution Charge

MoP&NG has notified Petroleum and Natural Gas Regulatory Board Act, 2006. Petroleum and Natural Gas Regulatory Board (PNGRB) was constituted on October 1, 2007. PNGRB has notified regulation for calculation of Transportation Tariff of pipelines other than Dedicated Pipelines on November 20, 2008. GAIL is in process for submitting the transportation tariff for various pipeline networks calculated as per the regulation.
16 Pricing Department July 29, 2012

Transportation Tariff: Natural Gas

continued

PNGRB Tariff Regulation: Salient Points

Applicable for Natural Gas pipelines including Spur Line and excludes Dedicated Pipeline and CGD networks. Capacity of Natural Gas Pipeline means the sum of capacity requirements of the entity (I/C + GSA), firmed-up contracted capacity with other entities (GTA) and at least 33% of sum of own requirement and firmed-up capacity. Tariff Review shall be done by the Board after every five consecutive years. Tariff shall be uniform within a Zone. Each Zone shall be of 300 kms each. Last zone may be less than 300 kms. The First zone shall start from the point of origin of pipeline. Each tariff zone shall have a corridor of 50 kms or 10% of the length of the pipeline (excluding spur line), which ever is lower, on either side of the pipeline. In case where injection of natural gas takes place in pipeline, the same shall be Zone One and subsequent zone shall be counted sequentially on either side along the contractual path. Tariff for next Zone shall be an increment over the previous Zone. Entity is free to define its own number.
Pricing Department July 29, 2012

17

Transportation Tariff: Natural Gas

continued

PNGRB Tariff Regulation: Salient Points (continued)

Tariff shall be worked out on DCF methodology based on the balance economic life of the pipeline. Economic Life of the pipeline shall be a period of 25 Years beginning from the date of commencement of physical activity for laying the pipeline. Extension of Economic Life for a block of 10 years at a time. 12% post tax Rate of Return on capital employed for the balance economic life of the pipeline has been provided. Capital employed shall be equal to Fixed Assets less Accumulated Depreciation plus Working Capital (30 days Operating Cost & 18 days Receivables). Fixed Assets shall include any subsequent replacement or improvement or modification. Volume to be considered for the First Year to Fifth Year of the operation of the pipeline shall be equal to 60%, 70%, 80%, 90% & 100% of entitys own requirement and the firmed-up contracted capacity respectively. Volume from the sixth year onwards shall be equal to sum of 100% of entitys own requirement and firmed-up contracted capacity and the actual volume of gas transported on common carrier of the previous year.
Pricing Department July 29, 2012

18

Transportation Tariff: Natural Gas

continued

Transportation Tariff for Dedicated Pipelines: Methodology for estimating tariffs for dedicated lines or a pipeline network is Discounted Cash Flow Method - IRR on the equity @ 12% post tax. Guidelines for appraisal of projects are followed as per the circular of Corporate Finance & Accounts dated April 24, 2009. Financial Assumptions are classified into two broad categories:

Capital Structure Operating Assumptions

19

Pricing Department

July 29, 2012

Transportation Tariff: Natural Gas

continued

Capital Structure:
Assumption Debt-Equity Interest on long term loan Moratorium on long term loans Repayment Value 70:30 or 60:40 SBI PLR 2%. 2 years 8 years after moratorium 1 2 3 4

Sr. No.

5
6

Interest on Working Capital

Return on Equity

10%
12% (post tax)

20

Pricing Department

July 29, 2012

Transportation Tariff: Natural Gas

continued

Operating Assumptions:
Assumption Value

Sr. No.

1
2 3 4 5 6 7 8 9.
21

Economic Life
Inflation Terminal Value Manpower Cost Overhead costs Insurance

15 yrs or less for Pipeline, 15 yrs for Compressor station

5% 5% Rs.20 Lacs per person per anuum 100% of manpower cost 0.50% of capital cost

Repair & Maintenance 1.50% of capital cost for Pipeline, 3.50% of capital cost for Compressor Station Corporate Tax Rate Unaccounted Gas As per IT act 0.6%
Pricing Department July 29, 2012

Transportation Tariff: LPG

Transportation Tariff for Jamnagar Loni Pipeline and Vishakapatnam Secunderabad Pipeline is worked out inhouse. Current Prices for LPG transportation is as below:

JLPL: Rs.1.52/MT/Km. VSPL: Rs.1.57/MT/Km.

PNGRB is in process of notifying regulation for calculation of Transportation Tariff for Petroleum Product Pipeline. Once notified, GAIL shall be required to calculate the tariff as per the regulation and apply the same on non-discriminatory basis.

22

Pricing Department

July 29, 2012

City Distribution Pricing

GAIL, in past, had formed various JVs for implementing City Gas Projects in various cities. GAIL has also formed a subsidiary GAIL Gas Limited to undertake future City Gas Projects under PNGRB regime. GAIL Gas has successfully bid for City Gas Project in the cities of Sonipat, Dewas, Meerut and Kota. Pricing department has provided support to GAIL Gas for bidding for City Gas Projects. Pricing Policy of GAIL Gas is finalized in consultation of Pricing department. Pricing department provides support to GAIL Gas for finalizing product prices and network tariff for existing cities viz. Firozabad and Baroda.

23

Pricing Department

July 29, 2012

Thank you

24

Pricing Department

July 29, 2012

HVJ/GREP/DVPL

DUPL/DPPL

GAIL (India) Limited Co. Pricing

26

7/29/2012

South Gujarat Network

GAIL (India) Limited Co. Pricing

27

7/29/2012

K. G. Basin Network

NCR Network

Cauvery Basin Network

GAIL (India) Limited Co. Pricing

30

7/29/2012

Mumbai Network

GAIL (India) Limited Co. Pricing

31

7/29/2012

Agartala Network