GAIL(India) Ltd (GAIL) Q3 FY23 Earnings Concall Transcript

GAIL(India) Ltd (NSE:GAIL) Q3 FY23 Earnings Concall dated Jan. 30, 2023.

Corporate Participants:

Rakesh Kumar Jain — Director, Finance

Kaviraj A — Executive Director

Unidentified Speaker —

Sumit Kishore — Executive Director, Gas Marketing

Analysts:

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Probal Sen — ICICI Securities — Analyst

Amit Rastogi — UBS — Analyst

Puneet Gulati — HSBC Securities — Analyst

Pinakin Parekh — JPMorgan — Analyst

Sabri Hazarika — Emkay Global Financial Services — Analyst

Yogesh Patil — Centrum Broking Limited — Analyst

S Ramesh — Nirmal Bang Securities — Analyst

Mayank Maheshwari — Morgan Stanley — Analyst

Aditya Suresh — Macquarie Asset Management — Analyst

Vishnu Kumar — Spark Capital — Analyst

Presentation:

Operator

Then. Ladies and gentlemen, good day and welcome to the Q3 FY ’23 Earnings Conference Call of GAIL India Limited, hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stock Broking. Thank you, and over to you, sir.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Thank you, Michelle. Good evening, everyone. It’s my pleasure to welcome all the participants and the management of GAIL India Limited led by Shri Rakesh Kumar Jain, Director of Finance, along with his other senior executives. On behalf of Antique Stock Broking, it’s a pleasure for us to receive you all this evening. I would like to request Shri Rakesh Kumar Jain to give his initial comments and then we can move on to Q&A. Over to you, sir.

Rakesh Kumar Jain — Director, Finance

Thank you, Mr. Varatharajan. Good afternoon, everybody, my dear friends from investors and analyst community. A very warm welcome to GAIL’s earning call for Q3 financial year ’23. The fiscal and financial performance for the quarter ended December 2022 is already shared with you and the same has been made available on the GAIL’s website.

As communicated by us from time-to-time during various earning calls and various meetings that the company is into a very challenging business environment for reasons known to all. The disruptions in supply of LNG cargo by GMTS continued during this quarter also. However, we have taken lot of mitigation measures in order to maintain the supplies and to protect our profitability. During the quarter, we have witnessed high volatility in spot LNG prices where the prices moved from approximate $45 per MMBtu in the month of October 2022 to $20 per MMBtu by the end of December 2022, there’s a swing of almost $25. which has actually led to significant inventory loss. This is to the tune of INR1,100 crore, this is one-off which we never saw. This is one of the major item in this Q3, we booked inventory loss of around INR1,100 crore for the unsold volume, which is equivalent to approximate 2 cargoes, which we purchased during October 2022, at that time, prevailing market price.

Now I would like to share the performance highlights of this quarter. GAIL’s turnover stood at INR35,316 crore in the current quarter as against INR38,440 crore in Q2 financial year ’23. There is a decrease of approximate 8% and this is mainly due to lower volumes in natural gas marketing, natural gas transmission and petrochemicals segment along with decreasing average natural gas price. If you see the average natural gas price which we sold in quarter two has decreased by almost $1 which was average $13.27 in Q2 has gone down to $12.27. Decrease in average price realization in petrochemical and liquid hydrocarbon segment by INR11,700 per metric tonne and INR7,300 per metric tonne, respectively. The PBT during the quarter decreased to INR223 crore as against INR1,876 crore in Q2 financial year ’23, this is down by 88%. And this is mainly due to decrease in gas marketing spread and I also shared just now, booking of inventory loss which is one-off, lower PC and LHC price realization and increase in fuel expenses of natural gas transmission on account of deallocation of domestic gas, that is to the tune of 0.45 MMSCMD from gas transmission side. You may be aware there is allocation of APM gas of 1.55 — there was allocation of 1.55 MMSCMD which reduced to 1.1 during August. And since this has happened all of a sudden. so therefore we had to purchase spot gas in order to meet the requirement of compressor fuel which we are booking. And of course, this is available as a transmission tariff — regulatory-wise, the tariff, but for the current quarter and also some what we booked in last quarter, the transmission segment has been hit by approximate INR400 crore on this account — INR400-plus crore.

The PAT during the quarter decreased to INR246 crore as against INR1,537 crore in Q2 for financial year ’23, down by 84%.

If you talk of nine months basis, GAIL clocked a turnover of INR1,11,292 crore as against INR64,517 crore in corresponding period of the last year, thereby registering an increase of 73% if you compare with last year and this is again mainly due to increased gas price, higher price realization on nine monthly basis in petrochemical and LHC segment, which is partly offset by decline in volume in natural gas marketing, natural gas transmission, petrochemicals and LHC segment. There is a decrease in PBT by 40% on nine months basis. PBT is INR5,993 crores as against INR10,044 crore and PAT gone down by 39% to INR4,698 crore as against INR7,681 crores.

Coming back to fiscal performance, gas marketing volume stood at 89.89 MMSCMD in the current quarter as against 92.54 MMSCMD in previous quarter. The decrease in volume is mainly due to our mitigation efforts. As you know that GMTS volume is not coming, therefore we have put supply cuts and that is why it is resulting into the decrease in gas marketing volumes. This has been — though there was a decrease of approximate 5 MMSCMD, but this has been offset by increased overseas sales. So all in all, around 2.5 MMSCMD, overall basis, marketing — gas marketing volume has gone down. Natural gas transmission volume stood at 103.74 MMSCMD in current quarter as against 107.71 MMSCMD in previous quarter. The capacity utilization was 50%. Again, the lower transmission volume is attributed to again the same reason, GMTS supplies. The polymer production stood at 68 TMT as against 95 TMT in last quarter. The production has decreased due to operation of plant at reduced load to manage shortfall of volume arising due to supply disruptions. LHC production stood at 247 TMT as against 228 TMT in previous quarter. The capacity utilization was 69%. LPG transmission remains almost flat 1,101 TMT as against 1,100 TMT in previous quarter and the capacity utilization was at 115% [Phonetic].

On consolidated financials for Q3 ’23 as compared to Q2 financial year ’23, the consolidated turnover in current quarter stood at INR35, 870 crore versus INR38,674 crore in previous quarter, down by 7%. PBT in current quarter is INR662 crore as compared to INR1,675 crore in Q2 financial year ’23, down by 60%. The PAT is INR414 crore as compared to INR1,315 crore in Q2 financial year ’23, down by 69%. Consolidated financials of a nine monthly basis, the consolidated turnover for nine months up to Q3 financial year ’23 stood at INR1,12,045 [Phonetic] crore versus INR65,373 crore in corresponding period in previous year, up by 72%. The PBT up to Q3 financial year ’23 stood at INR6,567 crore as against INR11,088 crore in corresponding period of previous year, down by 41%. The profit after tax stood at INR4,982 crore for nine months in financial year ’23 as compared to INR8,802 crore in corresponding period previous year, down by 43%.

In terms of capex and funding, GAIL has incurred capex of INR2,311 crore during quarter — the current quarter, and INR6,278 crore on nine monthly basis from April to December, mainly on pipeline, around INR3,648 crore; petrochemicals, around INR675 crore; operational capex, around INR640 crore; CGD projects, around INR160 crore; E&P, INR210 crore; equity contribution, INR965 crore. We have planned to spend approximate INR8,000 crore in the current financial year on pipelines, petrochemicals, CGD, equity, etc. Further, during the quarter, GAIL has issued funds — has raised funds of INR1,575 crore by way of issuing bonds for five years at a very competitive rate, that is at the rate of 7.34% per annum, which is better than even the AAA-rated corporate bonds PSU bonds and the rates which cover the various PSUs at the time in the range of approximate 7.45% to 7.59%. The total outstanding loans as of 31 December is INR10,164 crore.

For GAIL CGD business, GAIL is having infrastructure of 124 CNG stations and 2,34,000 DPNG connections. During the financial year ’22-’23, five new CNG stations and around 32,700 new DPNG connections were added. The physical volume supplies to these GAIL CGD is 0.22 MMSCMD during the year. In the next two years, there’s target to add over 100 new CNG stations and 2,50,000 DPNG connections.

Let me talk something about the GAIL Gas. During the current quarter, the gross turnover stood at INR2,623 crore as against INR2,716 crore in Q2, decrease of 3% and again mainly due to the decrease in average sales price. The profit before tax has increased to INR112 crore in current quarter as against INR101 crore in previous quarter. Profit after tax has increased to INR87 crore as against INR71 crore in previous quarter. The physical volume during the quarter remained flat, almost 5.5 MMSCMD. During the Q3 of financial year ’23, eight new CNG stations and 9,500 new DPNG connections were added. During nine months period ending December 2022, 19 CNG stations and 39,000 DPNG connections were added out of which 10 CNG stations have been added in Bangalore location. GAIL Gas along with its joint venture subsidiaries has infrastructure of 8,18,000 DPNG connections and 358 CNG stations, out of which Bangalore [Indecipherable] 79 CNG stations and 2,28,000 DPNG connections, as on 31 December 2022.

With respect to project performance, Mumbai-Nagpur-Jharsuguda pipeline is — that is of 1,755 kilometer, activities are moving in full swing and Mumbai-Nagpur section is expected to be completed by May ’23. Regarding Jagdishpur-Haldia-Bokaro-Dhamra pipeline, 50% of — that is 1,770 kilometer out of total pipeline length of 3,384 kilometer, have been commissioned. And remaining part is expected to be completed by June ’23. On the SA P/L, the frontline is likely to be completed by July ’23. Further, in relation to PDH-PP plant at Usar, presently, the tendering activities — other enabling activities are in full swing and project is slated to commission by April ’25. Regarding PP plant at Pata, various LLIs [Phonetic] tendering activities and site-enabling activities are in full swing and project is slated to be commissioned by April 2024.

Now, just I wanted to give you some outlook on our various segments. As I shared, the natural gas transmission business because of these supply costs, in current financial year, almost 10% transmission, almost — approximate 10% — there is a downfall of 10%. And in view of reduction of APM supplies for compressor fuel, there is impact of another 0.45 MMSCMD. These two are the reasons which has impacted and we hope that next year we will be able to achieve our normal normative volumes which we could not do this year. So this has an impact, both at — both have impact of almost INR1,000 crore this year, and hopefully, this will be taken care in next financial year.

Then coming back to the gas marketing, this year, we faced — because this was a all-of-sudden activities, geopolitical situations, GMTS supplies, so we are in the market for sourcing of gases, we are in discussions with various suppliers. And we hope that we will be able to enter into a deal for meeting our increasing supply — increasing demand for our downstream customers. Apart from that, we are also in discussion with GMTS so that the supply is restored to a normal level.

One more thing I would — as supplies to the Jagdishpur-Haldia-Dhamra pipeline is increased, our average tariff realization has increased during this year, which used to be 39.78 per MMBtu has gone up to 43.46 per MMBtu. And going forward, the supplies to the Jagdishpur-Haldia pipeline or other use of multiple pipelines will increase, therefore there will be — therefore, the further increase in tariff realization. Apart from that, the tariff for Jagdishpur-Haldia pipeline, as on date, hasn’t [Phonetic] been worked out considering the Phase 1 capex, which was approximate INR2,000 [Phonetic] and if we reduce the subsidy, around INR1,200 crore to INR1,300 crore, whereas total expenditure net of subsidy is around INR10,000 crore. So once the regulator takes care of these factory tariff for Jagdishpur-Haldia pipeline, which is currently around INR65 per MMBtu, we’re certainly going to be double. We have already filed our tariff quotations with PNGRB. PNGRB is reviewing the same. Apart from that, we have also filed the tariff in line with the revised parameters which notified by PNGRB and also with respect to integrated tariff notified by PNGRB. PNGRB is reviewing the same.

Just to take you through a recap, the PNGRB has recently made changes in their tariff regulation. I will like to highlight some of them. They have given — earlier the volume ramp-up benefits were available for first five years from the date of commissioning of pipeline, now that has been increased to 10 years. And apart from that, what they have done, it will be available phase-wise. So our, at least, three pipelines will have benefit of that, that is KKMBPL, Dabhol-Bangalore, Jagdishpur-Haldia pipeline.

Second, PNGRB, through an amendment to tariff regulation, has also given that the benefit of reduced — basically GAIL has adopted the reduced corporate tax rate. So earlier, there was apprehension where tariff will be revised. So because earlier tariff normative rate was considered about 33%, 34%, apprehension was that, that will be set off through tariff — through adjustment and revision in tariff by 25%. Now, even given that benefit that it will only be adjusted from the financial year ’22-’23, so the significant benefit is now available.

Third, the PNGRB, through its amendment in regulation, has also allowed the benefit of transmission loss — a normative loss, 0.1% without any subject to adjustment. Basically, it will be available extra throughput.

Fourth, PNGRB — if you have gone through the regulations — in terms of PNGRB regulations, the volume denominator is considered as normative, whereas fuel consumption is considered on actual basis. Now PNGRB has again revised this regulation. The fuel consumption will also be almost normative. In terms of regulation, it will be subject to maximum 2% of volume divisor considered instead of actual. One more regulatory amendment which PNGRB has done that earlier miscellaneous income were used to be set off through the expenses, now the miscellaneous income will not be set off until and unless we reach to the level of 12% post-tax return or 75% volume, not post — 75% volume. That 75% volume anyway provide the 12% post-tax return.

As we shared in the last — on 31 May 2022 during the Analyst Meet at Mumbai on 31 May that we will be getting at least INR2,500 crore of marketing spread in gas marketing, I’m happy to share that, in nine monthly basis, in spite of all those challenges, we have achieved at least INR2,500 crore of marketing spread and primary reason is that out of 5.8 MMTPA volume we sourced from United States, almost more than 50%, we have signed on Henry Hub linked contracts. So those kind of risks have been mitigated, more and more customers are coming forward to sign Henry Hub linked contracts and that will further take care the risk of — basic risks will further be taken care.

GAIL is now active participants to exchange, we are sourcing the good amount of gas from exchange and in last Q3, we have sourced almost 120 MMSCMD of gas from exchange at a very competitive price. One more positive which is going to happen in next year that we sold half MMTPA of gas in international market for five years, that five years is already over. So those eight cargoes — half MMTPA gas will be extra available to be sold in the domestic market.

I think, this is broadly from my side. And one more positive which will come from — for LHC segment, as we all know that, Kirit Parikh Committee has recommended for a cap price for LHC, which is around 6.5. Currently, the price is around 8.57 so input cost for our LHC has gone up significantly. If this recommendations are accepted, then assuming all parameters remain same, it has a significant upside, around INR1,000 crore to INR1,200 crore.

Thank you very much.

Operator

Shall we open the floor for the Q&A session?

Rakesh Kumar Jain — Director, Finance

Yes.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] We have the first question from the line of Probal Sen from ICICI Securities. Please go ahead.

Probal Sen — ICICI Securities — Analyst

Thank you very much for the opportunity. Good evening, sir.

Rakesh Kumar Jain — Director, Finance

Good evening, Probal.

Probal Sen — ICICI Securities — Analyst

Yeah. Thank you for the detailed explanation of why the results have been a bit weak for this quarter, that was very useful. I have two questions. One was, sir, the disruption in the Gazprom supply happened a few quarters back from what we understand. So volumes anyways have fallen from about, I think 114 MMSCMD levels to about 107 MMSCMD, 108 MMSCMD for the last few quarters. Just wanted to get a sense, sir, the additional 3 to 4 MMSCMD fall in this quarter, that is the result of what you were talking about when you said you had high-priced cargoes, whereas the current prices have dropped so the inventory loss is also one of the drivers for the volumes not being sold and, therefore, transmission volumes were also lower this quarter?

Rakesh Kumar Jain — Director, Finance

Probal, I think, just don’t see that this quarter Independent. We actually started seeing this cut through [Indecipherable] customer, in fact, sometime in August — July 2nd fortnight and also we have ramped down our Pata Petrochemical sometime September and then for a moment — for a few or for almost 30 days or so, we stopped during October. So the impact in quarter two was there, but not proved yet to that extent. But the full impact of supply cuts actually has happened in Q3.

Probal Sen — ICICI Securities — Analyst

Okay, okay.

Rakesh Kumar Jain — Director, Finance

That is the reason. If you see — compare quarter two to quarter three, you will not arrive at that figure, because quarter two was not fully comparable, supply cut was for a partial period, Pata was running. It is quarter three which has seen the actual impact.

Probal Sen — ICICI Securities — Analyst

Got it, sir. The second question was around the measures and the things that you spoke about on the tariff front. Obviously, all of these measures will be particularly positive. Just, is it possible to put any sort of percentage? Now, you mentioned of course about blended tariff going from INR39.8 to around INR43.5 on…

Rakesh Kumar Jain — Director, Finance

I got you. It will not be right idea for me to give you exact number, because the regulators will decide, but if you talk to me — or a ballpark figure, because there are lot more readjustment apart from this, because there will be capex adjustment, opex adjustment, past over recoveries. If you talk to me, independent of these factors, it is INR10 per MMBtu at least.

Probal Sen — ICICI Securities — Analyst

Got it, got it. As in just as an indicative range. That is very useful. Last question…

Rakesh Kumar Jain — Director, Finance

Yeah, yeah. For only these factors, I’m tapping [Phonetic] independently that is coming, not less than INR10.

Probal Sen — ICICI Securities — Analyst

Yes, of course, the regulator can always sort of disallow some expenses here and there and so on. That can happen.

Rakesh Kumar Jain — Director, Finance

[Technical Issues] almost 25% of current value.

Probal Sen — ICICI Securities — Analyst

Got it, sir. The last question, if I may, on the petrochemical front, our utilizations have all been dropped quite a bit. So for FY ’24, given that we do have some visibility from — maybe from some domestic sources and I think earlier guidance was that volumes, ideally, should go up, improve from these levels gradually. What sort of utilization level should we be building in or should we be working with for the petrochemical business assuming some gas, once again, start to become available and you don’t have to sort of cut utilization sharply for FY ’24?

Rakesh Kumar Jain — Director, Finance

So, FY ’24, look, we are currently running our Pata Petrochemicals at almost 40% and the vision is that we want to continue to supply to end consumers. At least we are able to satisfy them, and they continue to remain with us. As far as your question, what level we look for ’24, we are actually working on sourcing of gas and we are hopeful that we will be successful and why should I give you a number of 40% to 80% or 70%, we intend to run at 100%.

Probal Sen — ICICI Securities — Analyst

Got it, sir, got it. Fair enough, sir. Fair enough. I just will know that answer as we go along. Thank you so much. Thank you so much.

Rakesh Kumar Jain — Director, Finance

Sure.

Operator

Thank you. [Operator Instructions] Thank you. We have the next question from the line of Amit Rastogi [Phonetic] from UBS. Please go ahead.

Amit Rastogi — UBS — Analyst

Sir, thanks for taking my question and explaining all the results in quite detail. Sir, my first question relates to the tariff. You highlighted that around 25% tariff increase. So are we looking at the integrated tariff to be 25% higher than the current realized one? And broadly, if we can assume that this will have 15-year or 20-year of life or what are the assumptions in that?

Rakesh Kumar Jain — Director, Finance

I have not considered any integrated tariff benefit which will be available. As I said, I have only considered those factors which have come through regulatory amendments and by putting on the model, what kind of impact they may have, I indicated the ballpark impact, if I say for INR40 average tariff today, they may have around INR10 impact of these factors. Integrated tariff, when it comes, it will have a different kind of benefit. Apart from the increase in revenues, it will also have benefit of market expansion. What — we, as a company, look integrated tariff as a market expansion tool, because now market is in — it’s away from source, away from the Western region, it is more in a Northern-Eastern part of the country. So we look at integrated tariff from different perspective apart from the benefits, which are available as an integrated tariff, that we have not worked out.

Amit Rastogi — UBS — Analyst

And sir, what are the expected timelines? Can we expect all these tariff orders to come before March 31st?

Rakesh Kumar Jain — Director, Finance

Yeah, so we have submitted our tariffs. As we understand for PNGRB, they are in the process of making public consultation document. If — based on our understanding, if everything goes right, by end of this month or maybe next month, public consultation document will be available and that will give you fair idea about the tariff submissions, tariff moderations or what — where the tariff will go. But let me not focus on to this. Actually this anyway will happen. What you as an analyst or investors should look, as I said, Jagdishwar-Haldia pipeline, tariff has just been notified, which was notified sometime in 2018, ’19, considering only capex of around INR1,500 crore. I don’t have right figure right now, because INR2,000 crore by total capex, then the subsidy was reduced from that. Whereas total capex for this pipeline is INR15,000 crore, INR5,000 crores, if we reduce subsidies, INR10,000 crore we have almost incurred. Now on NPV basis for last three to four years, tariff is going to go substantially up. Currently, tariff is 65, even if you consider on a conservative side, on Independent pipeline, it will not be less than 125, 130.

Amit Rastogi — UBS — Analyst

Okay, sir. Got it, got it. So you have already [Speech Overlap].

Rakesh Kumar Jain — Director, Finance

That is a factor because that is the major thing, let us forget the tariff regulation amendment, the integrated tariff, this is anyway available to us. Apart from that KKMBPL tariff is also due for revision, the public consultation for the same was done in 2019, it has also good upside. The Chainsa-Jhajjar pipeline, Dadri-Bawana pipeline, for which consultation also was done in 2019, we expect there will be some kind of upside available, then the tariff regulation amendment and then you come to the integrated part.

Amit Rastogi — UBS — Analyst

Okay, sir. Got it. And, sir, my second question relates to the U.S. LNG contracts. So, now you mentioned that 0.5 million tonne additional LNG we’ll be bringing. So in total, how many cargoes we bring — we are likely to bring in 2023 in India? And what is the average landed price including the spot transportation cost we have and how much this is like over and above ’22 — 2022 cargoes?

Rakesh Kumar Jain — Director, Finance

So we have almost 90 cargoes from the United States and we intend to bring all of that to India. And coming back to your transportation costs, actually it depends, because we are not directly bringing all these cargoes through our charter ships. We are using lot of optimization mechanism like time swaps and the destination swap, FOB sales and BS [Phonetic] buy, which gives us lot of flexibility and saving in transportation costs. So that depends on what kind of deal we click, but if you talk to me of normative transportation tariff, it ranges from $2 to $2.5.

Amit Rastogi — UBS — Analyst

Okay. Sir, given this scenario, now, shall we expect that CGDs, which were getting almost 50%, 60% cut in the U.S. LNG contracts tied up with GAIL, they will start to get the full LNG because you will bring more cargoes in ’23?

Rakesh Kumar Jain — Director, Finance

CGD were not getting cut because of the U.S. gas. It was because of GMTS.

Amit Rastogi — UBS — Analyst

Okay, but their contracts were I think linked to Henry Hub. Right? So…

Rakesh Kumar Jain — Director, Finance

No, no, no, most of the CGDs — there may be some, but we have not put the cut because of the Henry Hub.

Amit Rastogi — UBS — Analyst

Okay, sir. Got it. Sir, I’ll come back in the queue. Thank you, sir. Thanks for taking my questions, once again, thank you.

Operator

Thank you. We have the next question from the line of Puneet from HSBC. Please go ahead.

Puneet Gulati — HSBC Securities — Analyst

Yeah, thank you so much for the opportunity. My first question is with respect to the loss that you booked on the transmission, INR400 crore. When do you think you’ll get the approval from PNGRB to book it back and as income in your P&L?

Rakesh Kumar Jain — Director, Finance

Puneet, let us not look it as a loss. This year we booked more expenditure of INR400 crore. Actually, the tariff revision takes place in a period of five years and we can go to regulator even earlier, if there is a significant change in parameter. We have already gone to the regulator for considering this fuel expenses apart from other factors. What I said earlier also, the tariff petition has already been submitted. They are under process, they are reviewing, PCD is likely to be available maybe by next month, if not this month. And then, normally, it takes three to four months for PNGRB to finalize the tariff. So safely, next financial year, April or May, we will be able to see the revised rates.

Puneet Gulati — HSBC Securities — Analyst

And then you can book it back in your P&L.

Rakesh Kumar Jain — Director, Finance

Yeah, when revenues are available. Actually what is happening, it has a double impact. This year we have booked, say, INR400 crore expense as extra, which is not available. Next year, this INR400 crore will not be there because now we have a time to source cheaper gas. Before that time, the prices were $40, now you can buy gas at $20, $15. So those extra expenses will not book next year. Apart from that, we will have increased revenue on account of revision in tariff considering this apart from other aspects.

Puneet Gulati — HSBC Securities — Analyst

Okay, and that will be booked as one-time income or is that — will that be spread over a longer period of time and revised…

Rakesh Kumar Jain — Director, Finance

It will be over economic life, because when they work out the tariff, they started over economic life, so INR400 crore will not be available at one time in next year, INR400 crore expenses may not be there next year, but the revenue will be available in a period of economic life, depending upon the life of the pipeline, in this case, HVJ, which has a life till 2033.

Puneet Gulati — HSBC Securities — Analyst

Okay. Understood. My second question is, how much gas is now going via the Jharsuguda pipeline?

Rakesh Kumar Jain — Director, Finance

No, no, nothing. Pipeline is under construction.

Puneet Gulati — HSBC Securities — Analyst

Okay, nothing. So that normative tariff that you talked about will start — you’re saying that impact — that number will go up later only?

Rakesh Kumar Jain — Director, Finance

Clearly, that is without pipeline there will not be any change in tariff of Mumbai-Nagpur-Jharsuguda pipeline.

Puneet Gulati — HSBC Securities — Analyst

Okay. And on the inventory loss of INR1,100 crore, at what LNG price was that determined? And is there a risk of more loss going into this quarter as well?

Rakesh Kumar Jain — Director, Finance

We have almost booked that because we purchased around $40 — I don’t have the exact data. And already we have booked — we have valued the inventory as on 31 December price, which was around $20, $21 $22. So majority of loss we have booked. So we don’t expect that it will happen again.

Puneet Gulati — HSBC Securities — Analyst

Okay, but there’s still a reduction, you said it’s about $14, $15, so $5 further down, right?

Rakesh Kumar Jain — Director, Finance

No, no, no. Already, say, $21, $22, we have valued it. So what will happen, now, if you see, it will — $14, $15 or if prices increase, the spot prices increase, then we may not require to book any loss. So $20, $21 is not a very significant price levers

Puneet Gulati — HSBC Securities — Analyst

Understood. That’s very helpful. That’s all from my side. Thank you.

Rakesh Kumar Jain — Director, Finance

Thank you.

Operator

Thank you. We have the next question from the line of Pinakin Parekh from JPMorgan. Please go ahead.

Pinakin Parekh — JPMorgan — Analyst

Yeah. Thank you very much, sir. Sir, my first question is just trying to understand the inventory loss better. So essentially, the loss arose because GAIL took an open position without a back-to-back contract with the buyer in this environment and hence, there is a price loss?

Rakesh Kumar Jain — Director, Finance

No, no. You know that during October, the prices of LNG were hovering around $45 and we purchased at a better price, not at $45, lesser than the $45. And you also know that, on quarterly basis, fertilizer bidding comes. Okay? We purchased three cargo and we got the contract. We supplied some of the quantity to them, but in view of significant volatility, the fertilizer came out with another bidding in December, and they did not take the volume at that price. So that’s how that volume remains. So we did not take any speculative or open position. Certainly, this is a continuous affair that fertilizer bidding comes, you have to go there and based on your likely volume available, you purchase that. But what has happened, by December, the prices went down, so there was less offtake.

Pinakin Parekh — JPMorgan — Analyst

So essentially, sir, with the fertilizer segment as a buyer, the price risk is essentially borne by GAIL, because if tomorrow there is another price drop, because LNG prices are expected to remain volatile, then that inherent volatility will be there on a quarter-to-quarter basis especially in an environment like this. There is no price sanctity with the fertilizer segment.

Rakesh Kumar Jain — Director, Finance

No, no. This was — on a routine fertilizer supply, which is 90% we are supplying on our contract, there is no volatility involved, there is no price risk involved. It is only when we bid through EPMC [Phonetic], then we take positions. But this has never happened in past. So this is one-off situation which has happened that price went down from $45 to $20, so that’s why it happened. Now we also have seen the market how market behaves accordingly, we will be taking positions. But we also don’t expect that prices will move $45 to $20, because this was a unique situation.

Pinakin Parekh — JPMorgan — Analyst

Sure, sir. Sir, my second question is just trying to understand the petrochem segment utilization better. Now, if oil prices were to remain at this level through the year and hence end petrochem prices were to remain at these levels, then at what spot LNG prices can utilization go back to 100%? At $20, can you operate at 100% or you need a lower LNG or you can operate at a higher LNG?

Rakesh Kumar Jain — Director, Finance

If the price — petrochemical price remains at current level, we will be able to operate our plant at 100%, around $16-plus.

Pinakin Parekh — JPMorgan — Analyst

$16, so at $20, $21, sir, then the utilization will come off.

Rakesh Kumar Jain — Director, Finance

That’s what I was telling in response to earlier question that why we expect 40% to 80%, we expect 100%, because we don’t expect price to remain at that level.

Pinakin Parekh — JPMorgan — Analyst

Understood, understood. That’s very clear. Thank you, sir.

Operator

Thank you. We have the next question from the line of Sabri Hazarika from Emkay Global Financial Services. Please go ahead.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Yeah, good afternoon, sir. So my first question is regarding the LNG scenario right now. So how has been the experience so far in terms of like getting long-term deals as a replacement to Gazprom and also to add to your portfolio? So there has been some news regarding, I think, that you’re almost close to signing a deal with ADNOC also. So just wanted to know some idea on this.

Rakesh Kumar Jain — Director, Finance

My colleague Mr. Kaviraj, Executive Director, LNG will share the details. But, news — let us not go by news. We are not only in talks with ADNOC, we are in talks with lot many parties and probably we will be getting a good deal. But with specific answer to your question, I request Mr. Kaviraj to…

Kaviraj A — Executive Director

Good afternoon, everybody. As our Director, Finance have rightly said, we should not go by news articles. But fact remains that we are actively in discussion with couple of long-term LNG suppliers and the discussions are at various levels with different parties. But since this being a long-term contract and market is also quite volatile, we are — and it is taking more than expected time. But we are expediting it, hopefully, we should be able to conclude at least one contract shortly.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Right. And second question is on your overall gas volumes outlook. So we have seen that dip but I think with spot LNG prices also cooling down. If we look into the numbers which have been stated by PLNG also, I think they have also been back to something like 80%, 81% utilization. So are you seeing better numbers in Q4 and what is your guidance for FY ’24 as a whole, both transmission and marketing?

Rakesh Kumar Jain — Director, Finance

Let us not immediately look that Q4 will have miracle. We expect that Q4 certainly will be better than Q3. But in ’24, at least, we are hoping that we’ll be back to normal.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Normal as in 110%-plus for transmission?

Rakesh Kumar Jain — Director, Finance

Yeah. Anyway, we are still running 104%, 105% or 110%. Why 110%, why not 113%, 114%?

Sabri Hazarika — Emkay Global Financial Services — Analyst

Okay, sir. And your marketing — EBITDA number is also like based on, say, 95% 100% volumes, right, of INR2,500 crore number that you have given?

Rakesh Kumar Jain — Director, Finance

Yeah. So whatever number I have given for nine months is based on the current level, which are actual numbers.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Right, right. So — but minimum INR2,500 crore for FY ’24 also you are pretty confident.

Rakesh Kumar Jain — Director, Finance

So anyway, what happens — when I made this statement of 31 May ’20 [Phonetic] — because investors and analyst community has concern about gas marketing that you cannot — you don’t look at it as a sustainable segment, but we said in that meeting that you can look for at least INR2,500 crore PBT from this segment. Under the current volatile market, we have been able to maintain INR2,500 crore in nine months. So we expect that in ’24 we’ll do far better than this, particularly because we will have more supplies, that’s what we expect. Second, we have signed lot of back-to-back contracts, thereby avoiding the price risks. So we expect that we should do better as compared to this year, even in gas marketing.

Sabri Hazarika — Emkay Global Financial Services — Analyst

Okay, sir. Fair enough. Thank you so much and all the best to you.

Operator

Thank you. We have the next question from the line of Yogesh Patil from Centrum Broking. Please go ahead.

Yogesh Patil — Centrum Broking Limited — Analyst

Thanks for taking my question, sir. So the question is related to current gas trading environment. Looking into the January average Henry Hub prices, which is much lower and India’s landed price of Henry Hub would be lower than $9 per MMBtu considering the $2, $2.5 per MMBtu transportation cost. So what we understand, sir, the same gas is being sold to various consumers at $12 to $13 per — $12 to $13 slope to Brent. So it suggests that GAIL is making handsome trading margins on Henry Hub. Is it right understanding?

Rakesh Kumar Jain — Director, Finance

As I shared with you, more than 50% contract for Henry Hub gas, we have signed back-to-back. So irrespective of Henry Hub level, we remain neutral, okay? And this we signed in order to avoid the price volatility to make the segment consistent. Now, remaining 50%, yes, there may be upside, there may be downside. But what we do, we take positions in paper market. Because in order to avoid these price risks of crude versus Henry Hub volatility, we take, time-to-time, positions in paper market and therefore we avoid those risks and try to remain consistent. So we don’t see any windfall or any extraordinary profits, but certainly we will be able to maintain our profit.

Yogesh Patil — Centrum Broking Limited — Analyst

Okay. The second question is related to, again, INR1,100 crore inventory losses on the trading side. So can you please provide the same like-to-like inventory losses or gain in the previous quarters, if happened in Q2 FY ’23 or Q3 FY ’22?

Rakesh Kumar Jain — Director, Finance

I don’t have any figure ready-made but I can say you, this was — I think not, but it was — even if it was, it was not significant. That’s what I am not able to remember. So there was nothing which was considerable. I think it was not there, but it was not considerable even if — because significant thing, anyway we ourselves shares with you.

Yogesh Patil — Centrum Broking Limited — Analyst

Okay, sir. Thanks, thanks a lot.

Operator

Thank you. We have the next question from the line of S Ramesh from Nirmal Bang Securities. Please go ahead.

S Ramesh — Nirmal Bang Securities — Analyst

Good evening and thank you very much. Can you hear me?

Rakesh Kumar Jain — Director, Finance

Yeah,, I can very well hear you.

S Ramesh — Nirmal Bang Securities — Analyst

And so going back to the tariff regulations and the outlook for the gas transmission business, when you indicated the current tariffs and the potential increase in the tariff, these are gross tariffs before operating expenses in line what the regulator announces or these are at the EBIT level? How should we read them?

Rakesh Kumar Jain — Director, Finance

These are gross.

S Ramesh — Nirmal Bang Securities — Analyst

Gross, okay. And so if you’re looking at the economic life, according to the new regulations, economic life is 25 years. So this new life — economy life of 25 years will apply only to the new pipeline and HVJ will remain at 2033?

Rakesh Kumar Jain — Director, Finance

Let me tell you. Economic life always has been 25 years, there is no change in regulatory provision. But what is the regulatory provision is that — what is the regulatory provision, why the impact is what PNGRB is doing. When PNGRB notified tariffs in 2018 and ’19, even though in terms of regulation, the economic life is 25 years, for the purpose of competition of tariff, they considered 30 years. Second, there is another regulatory provision that after completion of economic life there is a provision for extension of economic life by 10 years. So if you see, HVJ was first commissioned in August ’87, if we go by those regulations, the economic life was over in 2012, but regulator has increased the economic life, say, around to 2033, it means they have increased the economic life more than twice. So economic life — provision of economic life increases there in the regulation and which is being done by PNGRB whenever they work out the tariff. If required that economic life is over, they increase after assessing the health of the pipeline.

S Ramesh — Nirmal Bang Securities — Analyst

Okay. So — because one of the other companies in transmission suggested that the regulator will look at the entire gas grid and fix an economic life uniformly for the entire system. That’s why I asked that question. So you are saying…

Rakesh Kumar Jain — Director, Finance

There is no entire system as on date. As on date, pipelines are individual pipelines. If you see economic life of HVJ, I say, around 2033, if you see Dabhol-Bangalore, it is around 2038, KKMBPL around 2038. So it is pipeline to pipeline. I’m not aware which grid they are talking about. But what is the current situation, I have shared with you.

S Ramesh — Nirmal Bang Securities — Analyst

Okay. And if we’re looking at your petrochemical and LPG and hydrocarbon business, when you talk about the potential upside, say, in LPG and hydrocarbons from the reduction in APM gas prices, what is the kind of outlook you have for your end product prices, given that there is some volatility in oil prices and LPG market? Do you expect the current end product prices to sustain? What is the outlook there?

Rakesh Kumar Jain — Director, Finance

Actually, I cannot predict about LPG price, what will remain in future. But what can I see, current prices, if you see historically this winter LPG price goes up, but this is the unique year where LPG price has gone down in winter. So if nothing happens, these price may be sustainable price. But future I cannot predict what will be the LPG price.

S Ramesh — Nirmal Bang Securities — Analyst

So one last one. Since OMCs have got some compensation for under-recovery in LPG, is it possible that you can also make a similar claim or because it’s based on the increase in APM gas prices and this LPG is going to the public distribution system, is there a cake [Phonetic] for GAIL also because…

Rakesh Kumar Jain — Director, Finance

No proposal is there — no such proposal is there with us.

S Ramesh — Nirmal Bang Securities — Analyst

Okay, thank you very much. I’ll join the queue.

Rakesh Kumar Jain — Director, Finance

Thank you.

Operator

Thank you. The next question is from the line of Mayank Maheshwari from Morgan Stanley. Please go ahead.

Mayank Maheshwari — Morgan Stanley — Analyst

Thank you for the call, sir and the detailed answers. Just one question from my end and this was regarding the GMTS supply. I think you were sharing around your strategy around trying to kind of get your long-term contracts. Can you just give us a bit more detail of by when this 8 MMSCMD, 9 MMSCMD of volumes you will be able to kind of fully get back on a long-term basis?

Rakesh Kumar Jain — Director, Finance

Actually, we are also not clear when we’ll get back, we are pursuing or in discussion with the supplier. And those outcomes is still — are inconclusive. We are still under discussion. So, until those are concluded it will be difficult for us to predict when will we get the full supply.

Mayank Maheshwari — Morgan Stanley — Analyst

Sir, I was referring to not just from the original supplier, but to the other factors — other contracts you were trying to kind of negate off this effect. Is there a thinking process around when you can at least get to long-term supply contracts with some other suppliers to kind of negate off the pain on GMTS?

Rakesh Kumar Jain — Director, Finance

Yeah, one is GMTS, which we discussed. Anyway India — Indian economy is needing more and more gas. Even if GMTS would not have happened, we were in the market for sourcing gas, but GMTS circumstances has forced us more, that not only the source to increase market demand, but we source little more than that so that even if the GMTS comes, we are able — even if GMTS is getting delayed, we are able to serve the market. And even if GMTS comes in full, we have flexibility to tap in international market. You must have seen that in past, we have seen — we have sold almost 10 MMSCMD of gas, which is almost equivalent to GMTS volume in international market, because that ability we have because of the FOB contracts from United States. So we are in a better position that even if we source equivalent to GMTS, little less than GMTS, apart from increased demand, we will be able to not only supply to our Indian market, but we will be able to play more in the international markets.

Mayank Maheshwari — Morgan Stanley — Analyst

Got it. So is it fair to say, whenever you’re contracts come in and you are able to source alternative supply, that will be mostly linked to Henry Hub kind of contracts rather than any oil-linked contract?

Rakesh Kumar Jain — Director, Finance

No, no, no. We are not particular about Henry index. We look for, as a portfolio, as a gas major in the country, we look for all kind of index as long as the prices are affordable to customers in India.

Mayank Maheshwari — Morgan Stanley — Analyst

Got it, okay. Thank you.

Operator

Thank you. [Operator Instructions] Thank you. We have the next question from the line of Aditya Suresh from Macquarie Asset Management. Please go ahead.

Aditya Suresh — Macquarie Asset Management — Analyst

Thank you, sir, for the time. I had two specific questions on gas marketing. First is on the supply issue, right? So obviously the Gazprom contract is 2.5 million tonnes. Our U.S. supply is 5.8 million tonnes, right? So, I guess what I’m trying to get at is how much of your U.S. volumes becomes available to offset Gazprom and by when? Or if I had to rephrase differently, you said that your U.S. volumes, about half of it is kind of free, that would then tell me that you can offset full Gazprom exposure by bringing those volumes to India. So can you just give some understanding on that? How much — when can your U.S. volumes, when they kind of go off these hedges, you can offset the exposure from Gazprom?

Rakesh Kumar Jain — Director, Finance

We are not clear what you mean by 50% is free. Can you just elaborate?

Aditya Suresh — Macquarie Asset Management — Analyst

I think in your remarks, you had mentioned something about some of our U.S. volumes are already kind of placed, some of it is hedged, etc. So I was a bit unclear about the comments which you made. But the broader question, sir, is simple. In Gazprom, your exposure is 2.5 million tonnes and there are few cargoes right now. U.S., your supply contract is 5.8 million tonnes. By when do you get at least 2.5 million tonnes available to offset this Gazprom exposure?

Rakesh Kumar Jain — Director, Finance

Yeah, efforts are on, but since we have to tie up on a long-term basis, it will take its time.

Aditya Suresh — Macquarie Asset Management — Analyst

My understanding — sorry to push on this, but my understanding about the U.S. volumes you’ve placed also were more short-term hedges, maybe, at best, about a year in terms of some of these time swaps, inflation swaps, etc. So, is that understanding incorrect then?

Rakesh Kumar Jain — Director, Finance

No. We are not able to understand you first. There is nothing — I mean, don’t link hedging and physical.

Aditya Suresh — Macquarie Asset Management — Analyst

How much of your U.S. volumes can you bring to India today and in FY ’24?

Rakesh Kumar Jain — Director, Finance

All we will bring into India. All 90 cargo — approximate 88 to 90 cargo we’ll all be bringing to India.

Aditya Suresh — Macquarie Asset Management — Analyst

Okay. And with that, can you therefore then fully offset the Gazprom exposure?

Unidentified Speaker —

No. Otherwise we would have — our sale would not have gone down, isn’t it?

Aditya Suresh — Macquarie Asset Management — Analyst

No, I guess, it could — sorry again to push but, I guess my real question is that, clearly, you’re not bringing all your U.S. volumes to India today, right, in FY ’23. Some is being sold [Speech Overlap].

Rakesh Kumar Jain — Director, Finance

Let me tell you, this financial year, we are not bringing all because 8 we had already sold in the international market, that contract is over. So those extra 8 cargoes or half MMTPA will be available, that is the extra from U.S., which is available to country.

Aditya Suresh — Macquarie Asset Management — Analyst

Okay. And just one final piece is in terms of your gas marketing volume mix today, are you able to kind of distinguish between how much is back-to-back in nature?

Rakesh Kumar Jain — Director, Finance

So we have 14 MMTPA of portfolio. Let me give you full breakup. We have 14 MMPTA of portfolio, 2.5 or you can say 2.85 [Indecipherable] because Gazprom is not available, 11 million, RasGas, almost is back-to-back. Then we have signed almost 50% of out of 5.8 Henry Hub on back-to-back. Okay? And that is around, you can say, 7 million tonne we have on back-to-back, out of 11 tonne, if we reduce the Gazprom. So remaining we have contract on different linkage and we are supplying, say, purchasing Henry or supplying our crude but then we are taking positions to mitigate those risks.

Aditya Suresh — Macquarie Asset Management — Analyst

Okay, thank you.

Operator

Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.

Vishnu Kumar — Spark Capital — Analyst

Good evening, and thanks for the time. Sir, you mentioned that you’re working on some LNG bids. So what would be the indicative slopes that probably we might be getting if we come to a deal or what is the current running rates like?

Rakesh Kumar Jain — Director, Finance

I think we’ll not be able to share even after conclusion.

Vishnu Kumar — Spark Capital — Analyst

Okay. Sir, for quite some time, we’ve been sourcing lot of spot LNG for our petrochemical division. Now, let’s say, if you’re bringing 0.5 million tonne of the U.S. gas to India or, let’s say, if we conclude a deal, would we insulate our petrochem division going forward with 100% some kind of a lock-in and not rely on spot gas?

Rakesh Kumar Jain — Director, Finance

You are right. We are looking for additional gas, that’s how we are looking for additional gas. We were earlier also not relying on spot gas. So let me be very frank with you, it is only because of GMTS, which is substantial volume has gone down, 10 MMSCMD. So one of the internal consumer got affected. So, earlier also we were running Pata Petrochemical on spot. Nobody will do that. No planning is done on spot. So now unfortunate event has happened and we are looking for another alternative long-term basis.

Vishnu Kumar — Spark Capital — Analyst

Understood. So whenever we get for the next volumes, we will be locking 100%, at least, if spot GMTS is not available?

Rakesh Kumar Jain — Director, Finance

We always do that. It is only — currently because of all of sudden it has happened. Otherwise, we never do hands-on spot.

Vishnu Kumar — Spark Capital — Analyst

Got it, and finally, for volumes to pick up in the country, what level of pricing you think at least you see the gas demand coming back? We’ve seen country-level demand also come off a little. So what level of spot LNG, let’s say, if you see — if you think will be $14, $15 then you start to see some pickup in demand?

Rakesh Kumar Jain — Director, Finance

It’s a difficult question at what level of, because every consumer has a different appetite level. If you take our fertilizer, it depends at what level fertilizer is imported in the country. Power, you know that it doesn’t come under [Indecipherable], RLNG has a challenge. CGD, it depends on alternate fuel with source diesel — because they replace largely the diesel. So, for them, the crude is the alternative fuel. So it — every consumer has a different level of affordability and that’s how we, in our portfolio, keep all kind of gases, so that we take care of most of the customers. So no single price, I can say, which is actually okay for increase in gas market, because we look for all kind of market and try to satisfy the requirement from our portfolio.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. And just want to confirm the previous answer that you mentioned. You expect that the PNGRB tariffs for your major pipelines to be done in the next couple of months. Is that right?

Rakesh Kumar Jain — Director, Finance

We expect, at least by April, it should happen because already we have submitted. They normally take three months. And we are also pursuing, so that it actually is notified, say, by April, if not, April, mid-April or end of April. We are hopeful that it will be there.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir, thanks and all the best.

Rakesh Kumar Jain — Director, Finance

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Varatharajan Sivasankaran for closing comments. Over to you, sir.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Thank you, Michelle. So in case you have any comments to — final comments to make, please go ahead.

Rakesh Kumar Jain — Director, Finance

It was pleasure talking to you all. And if we could not answer any of your question, or some of the participants might have missed, we are always available offline and happy to answer your question.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Sir, if I may, I had one last question.

Rakesh Kumar Jain — Director, Finance

Yeah, yeah.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Sir, in terms of the new regulation in term — what [Indecipherable] just highlighted for [Indecipherable] high pressure high temperature gas, does that reduce our appetite in terms of bidding in terms of volumes or like does it reduce our maneuverability in the overall scheme of things in terms placing those volumes?

Rakesh Kumar Jain — Director, Finance

So I will ask my colleague, Sumit, to answer this, the ceiling on HPHT gas. Or you can repeat for the Q&A.

Sumit Kishore — Executive Director, Gas Marketing

Can you please repeat the question? Sorry, I missed the question.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Sir, obviously, we have reduced the marketing margin — restricted the marketing margin. So does that reduce your maneuverability in terms of placing those volumes and does it reduce your appetite in terms of bidding for those volumes?

Sumit Kishore — Executive Director, Gas Marketing

I’d say, as per the new HPHT order by the Government of India, the priority — in case it reaches the pro-rata distribution, the priority is given to the CNG PNG segment and then the fertilizer segment. So of course, it does ensure availability of fuel for as far as GAIL is concerned for our own CGD consumption to the extent of CNG PNG consumption. But yes, it does decrease the maneuverability for the trading segment and even our own consumption because the priority sector will get a higher priority.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Perfect, sir. Thank you, sir. And I wish to thank all the participants and the management led by Shri R.K. Jain. Thanks for taking time out to join this call. Have a nice day again, thank you.

Rakesh Kumar Jain — Director, Finance

Thank you.

Operator

[Operator Closing Remarks]