Average gas tariff for state-owned gas marketing firm GAIL India is likely to rise by about 40% next year following the petroleum regulator provisionally approving gas carriage charges that are nearly double the existing ones. Shares of GAIL India shot up 5.4% to close at Rs 425.20 on the BSE, compared with a 0.34% rise in the benchmark Sensex.

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The new charges, Rs 53.65 per thousand cubic feet (tcf) — up 88% from Rs 28.48 per tcf earlier — will be applicable to customers of GAIL’s parallel pipeline that is being laid along the existing 1,100 km line in northern and western India. For its old pipeline, the regulator lowered carriage tariff 11% to Rs 25.46, the Petroleum and Natural Gas Regulatory Board (PNGRB) said on Monday.

On an average, the two new tariffs will still result in a 40% higher income for GAIL, analysts pointed out.

“We are enthused by the nearly 40% increase in the regulator’s suggested tariff as we had expected the tariff to fall around 15%,” said analysts Niraj Mansingka and Ruchi Vora of Edelweiss Securities, who revised GAIL’s projected per-share profit this year from Rs 23 to Rs 26.5.

The PNGRB also approved a similar Rs 52.23 per tcf tariff for the East-West pipeline of Reliance Gas Transportation Infrastructure (RGTIL), a former Reliance Industries subsidiary that was later transferred to Mukesh Ambani.

The new tariffs imply revenues of Rs 3,733 crore a year from Gail’s new pipeline and Rs 5,384 crore a year for RGTIL.

Tariffs for gas pipelines are decided by the regulator as the business is considered a natural monopoly.  The tariff is set high enough to ensure a fixed return on the amount the companies show to have invested in setting up the pipeline, usually 12% a year. GAIL had claimed an investment of Rs 9,165 crore for the 1,100 km pipeline while the Mukesh Ambani firm claimed an expenditure of Rs 17,310 crore for putting up its 1,400 km pipeline.

The PNGRB approved the investment value of GAIL’s current 1,100 km pipeline at Rs 3,600 crore and therefore fixed a lower carriage tariff of Rs 25.46 for gas supplied through the old pipeline.

“The tariff cut is effective 20 November 2008. We estimate GAIL will have to take a Rs 300 crore pre-tax charge in financial year 2010-11 as a result,” Credit Suisse analysts Sanjay Mookim, Rajasa K and Prashant Gokhale said in a note.

They, however, warned that the new tariffs, to be confirmed on the basis of actual expenditure, are likely to face a backlash.