The new system of variable tariff for natural gas transmission introduced by the petroleum and natural gas regulatory board (PNGRB) could force gas-based industries to relocate closer to sources of gas production, in what could create more geographical imbalances in the country?s industrial development.
UD Choubey, a former chairman of GAIL India and currently director-general of the Standing Committee of Public Sector Enterprises (SCOPE), has raised this matter with PNGRB. In a recent letter, Choubey cautioned that zonal tariffs will lead to concentration of industries in areas closer to sources of natural gas production, putting other regions at a disadvantage.
However, PNGRB chairman L Mansingh told FE that it is an economic logic that industries develop in areas closer to sources of raw materials and that consumers of a natural gas rich-state are not supposed to subsidise consumers in other states.
Analysts say that variable tariffs would also increase price of piped natural gas (PNG) and CNG in cities away from sources of natural gas. Significantly, PNG has to compete with LPG which is heavily subsidised. The high gas transport tariff could seal the fate of city gas distribution projects in such places, they say.
India has traditionally followed a uniform tariff system for all consumers drawing natural gas from a pipeline, irrespective of their location with respect to source of natural gas. But the PNGRB recently stipulated a switch to zonal tariff system which provides for incremental tariff after every 300 km.
The policy could also affect development of gas-based power generation projects at locations far from gas sources. The PNGRB is planning to allocate city gas distribution licences for over 200 cities.
The new system of tariff determination goes against the government?s gas utilisation policy which has the stated objective of ensuring equitable growth for all parts of the country, says an industry expert.
Meanwhile, encouraged by the prospect of increased availability of natural gas from domestic sources, the government is planning to revive six stalled urea plants at locations like Sindri in Jharkhand and Gorakhpur in Uttar Pradesh. But the high cost of transporting natural gas to these locations might well come in the way of implementing the plan.
?Postalised tariff has always been preferred over zonal tariff for balanced growth of gas-based industry all over the country, particularly where gas market is in the development stage. For example, the Hazira-Bijapur-Jagdishpur (HBJ) pipeline was conceived based on a number of fertiliser and power plants in several states falling enroute. In case we go for zonal tariffs, industry shall polarise to locate near the source of gas only and regions away from the source would be put to relative disadvantages and deprived of benefits of this precious resource of the country,? Choubey said in his letter to the PNGRB. A copy of the letter has also been sent to BK Chaturvedi, member (energy) in the Planning Commission.
?The zonal tariff will lead to a large disparity between gas-consuming industries in different regions and such a difference in input cost will affect their growth in a competitive open market. For example, the ceramic industry in Punjab will be required to pay $2.6 per mmbtu higher gas transmission tariff compared to its counterpart in Gujarat even as both compete against each other in the open market,? the letter says.
?Zonal tariff for integrated gas pipelines will create a major bottleneck to achieving the policy objective of ensuring gas availability in all parts of the country for their equitable growth and thus goes against the gas utilisation policy,? the former GAIL chairman argued. Mansingh too agreed that the zonal tariff would lead to concentration of gas industries near sources of gas production. However, he said it is in sync with the economic logic of cost factor advantage. In other words, industries develop at places where there is easy availability of raw materials. ?Why should consumers of a natural gas-rich state subsidise consumers in other states,? he asked.
The government has already abolished the freight equalisation scheme which was meant to keep prices of coal and steel uniform across the country through subsidisation of rail freight, he pointed out. The PNGRB also argues that other sectors like Railways, airlines and power transmission also follow similar distance-based tariff determination methodology. The regulator has also contended that it has introduced the zonal tariff system. ?Everything goes through the structured process of public consultations,? Mansingh said.