New policy on third-party access would discourage captive builders of terminals
The Centre has finally moved to bring policy clarity about liquefied natural gas (LNG) infrastructure by setting out broader eligibility conditions for developers, including reserving 20% or minimum 0.5 million tonnes, of terminal capacity for use by third parties as a pre-condition for securing regulatory authorisation to build LNG terminals.
The new conditions would help user industries like power, fertiliser, refineries and petrochemicals to import LNG without having to set up their own re-gasification facilities. This would partly meet the growing shortage of domestic gas. But those looking to invest in creation of LNG infrastructure will be required to put up 20% additional capacity just to comply with the rule and and they need to be assured that they would be able to generate competitive returns on investments under the new regulatory regime.
The government also needs to clarify if the downstream regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB) would determine the re-gasification tariff as well or its mandate will still remain limited to registering of LNG terminals. Needless to say, investors’ perception will depend on how mandatory third party access rule is implemented.
When the Centre comes out with detailed rules later, it will have to resolve many practical issues that may crop up when the new regime is implemented. For one, developers proposing to set up LNG terminals for captive use may be discouraged by the third party access rule. They would like to know if they would be exempted from the new rule. Then there may be developers who have already tied up their long-term LNG supplies. They will now be required to add 20% more re-gasification capacity. It is a moot question if they will still go ahead with their investment plans.
Until recently, the sector was only lightly regulated and issues like re-gasification tariff were decided by the terminal developer and LNG importer between them without any regulatory intervention. But things will certainly change after the new regime becomes operational. Developers are likely to insist on a higher tariff to recover returns on additional investment that they may have to make to comply with the new regulations.
Since LNG terminals can be set up only in coastal areas where environment regulations would be stringent, the Centre can use this opportunity to simplify rules for obtaining key statutory clearances to attract requisite investment.
India is projected to face 20-30% shortfall in domestic availability of gas, which it must meet with imports. Long-term planning on infrastructure development will go a long way towards ensuring the country’s energy security. The government will have to balance the interests of investors and LNG consumers while finalising detailed guidelines.