Downstream oil and gas sector regulator Petroleum and Natural Gas Regulatory Board (PNGRB) has called public consultations on a landmark proposal by gas transmission utility GAIL (India) to allow unified or pooled tariff for seven of its inter-connected cross-country pipelines.
GAIL had said in a recent letter to the regulator it has not been able to earn 12 per cent post-tax return on total capital employed as provided for in the tariff regulations notified by PNGRB due to various factors including volume risk, capital cost issue and transmission loss.
According to the gas utility, the proposal would help rectify problems including high cascading tariffs for far-off customers and provide a level playing field to all customers connected to various LNG terminals apart from reducing discrimination between existing and new customers. However, it stated that the integration should first be introduced at the level of entity and then introduced for all pipelines across-India.
“So, to begin with, it may be more desirable to introduce and implement the Unified/Pooled Tariff concept at the level of an entity, i.e., for GAIL's interconnected cross-country pipelines. Such an implementation would also be in line with the CCEA decision dated 21 September 2016 because it has mentioned about Unified/Pooled Tariff for GAIL's inter-connected cross-country pipeline, and more specifically for all the customers on such pipelines,” GAIL said.
The Cabinet Committee on Economic Affairs (CCEA) had instructed the oil ministry to examine GAIL’s proposal asking it to take necessary steps by the end of 2016-17 financial year. The note conveying CCEA decision is part of the consultation paper floated by PNGRB.
"MoP&NG will examine GAIL's request of Unified/Pooled tariff for GAlL's inter-connected cross country pipeline for all the customers on such pipelines and decide whether such tariff should be fixed by MoP&NG directly, or necessary directions be issued to PNGRB in this regard, considering phase-wise actual/anticipated capacity utilization, operating expenses (including unaccounted gas, line loss) , future capital costs for last mile connectivity etc to ensure 12% post tax return on GAIL's investment. This would be examined in the light of the provisions of the relevant law and the exercise completed by the end of the current financial year (FY 2016-17)," CCEA had said in a decision last year.
Commenting on the development K Ravichandran, Senior Vice President at ICRA said that the implementation of unified or pooled tariff, as proposed in the consultation paper by PNGRB, would be a positive step for gas transmission players.
"The current tariffs approved by PNGRB consider normative capacity utilisations which results in lower tariffs and returns. Tariffs suggested in the consultation paper, if accepted by PNGRB, would be a key positive for the incumbent pipeline operators, notably GAIL, which has many under-utilised pipelines. Though the higher tariffs would lead to higher input gas cost for the consumers, some sectors like fertiliser will not be hit much due to the pass-through nature of subsidy regime. Further, CGD companies may be able to pass it to the consumers especially for CNG and PNG (domestic) sales,” Ravichandran said.
PNGRB had last week floated the public consultation paper “Integrated Authorisation for Unified/Pooled Tariff” for stakeholder comments. According to PNGRB, if the unified tariff is implemented, tariff for some existing natural gas pipeline customers may increase. It also said GAIL’s proposal for unification of pipelines at entity level only may lead to cascading effect on tariff as the customers will have to pay additive tariff for using a pipeline carrying gas from two different entities.