Reliance, ONGC Slump as Gas Price Increase Delayed: Mumbai Mover

Reliance Industries Ltd. and Oil & Natural Gas Corp., India’s biggest natural gas producers, fell the most in six months after the nation’s election watchdog directed the government to delay an increase in prices.

Reliance slumped as much as 3.6 percent to 872.50 rupees, the biggest drop since Sept. 3, and traded 3.2 percent lower at 876.90 rupees as of 9:18 a.m. in Mumbai. ONGC fell as much as 4.6 percent to 306.25 rupees. Reliance and ONGC are the biggest losers today in the benchmark BSE S&P Sensex, which lost 0.6 percent.

The Election Commission, which is supervising polls due to start April 7, asked the oil ministry to defer raising prices because the top court is hearing a case on allegations billionaire Mukesh Ambani’s Reliance will benefit from higher prices at the expense of the common man. The petitioning Aam Aadmi Party, which rose to power on an anti-corruption campaign and stepped down after ruling Delhi state for 49 days, is contesting the federal elections.

“This brings a huge amount of uncertainty into the gas price issue,” said Bhavesh Chauhan, a Mumbai-based analyst with Angel Broking Ltd. “All calculations are possible now, including timing and quantum of the increase.”

The Supreme Court is scheduled to hear today the case on the price of gas extracted from Reliance’s KG-D6 block in the Bay of Bengal, according to the court’s website.

Higher Prices

Local gas prices will rise to as much as $8 per million British thermal units starting April 1 from $4.20, India’s then Oil Secretary Vivek Rae said Jan. 12. Reliance may increase its pretax profit by as much as 7 percent on higher prices, Standard & Poor’s said in a Jan. 14 report.

“The new government may take a call on the gas price increase,” ONGC Chairman D.K. Sarraf said today in a phone interview. “Until then, we can’t challenge the Election Commission’s direction.”

Each dollar increase in gas prices will raise ONGC’s annual revenue by 40 billion rupees ($661 million), he said.

Arvind Kejriwal, who was Delhi’s chief minister, wrote to the Election Commission on March 20 asking it to stop the gas price increase, according to a statement by his party. The Aam Aadmi Party in February filed a police complaint against Ambani, Reliance and Oil Minister Veerappa Moily for creating an artificial gas shortage. Moily has denied charges of favoring Reliance and on Feb. 23 said the decision to raise prices was taken by the Cabinet.

Waning Production

Gas production at the KG-D6 block has slumped for three consecutive years as Reliance said the rocks were harder to penetrate than anticipated.

The gas field “has been the biggest cause of pessimism around Reliance,” Abhishek Agarwal, a Mumbai-based analyst at Macquarie Bank Ltd., said in a Feb. 10 report. The gas-price increase will boost output more than four times by 2019 as smaller discoveries become viable, he wrote.

The price revision, the first in four years, may make the fuel too expensive for use in power production, N.N. Misra, operations director at state-run NTPC Ltd., the nation’s biggest generator, said in February. The increase will also raise costs for use in homes and for producing fertilizers, fueling Asia’s highest consumer-price inflation.

Before it's here, it's on the Bloomberg Terminal.