The Cabinet on Wednesday allowed the petroleum ministry to determine marketing margins for supply of domestic gas to urea and LPG producers. Till now, marketing margin of state-run GAIL has been fixed by the government, whereas the private-sector Reliance Gas Transportation Infrastructure (RGTIL) has the freedom to determine the margin.
On September 26, FE reported that the petroleum ministry is soon going to seek the Cabinet’s nod for the power to fix gas-marketing margins for all players. The government’s move, based on the Petroleum and Natural Gas Regulatory Board’s (PNGRB) recommendations, could have implications for RGTIL which operates the East-West Pipeline (EWPL) between Kakinada in Andhra Pradesh and Bharuch in Gujarat; but since the current volume of gas taken through the 1,375-km pipeline is very low, the immediate impact would be marginal.
“This decision is a structural reform… Currently, different transporters are charging different marketing margins for the supply of natural gas. With this decision, there would be uniformity in the marketing margin on domestic gas charged by gas marketers for the regulated sectors, namely, urea and LPG. There would be a reduction in marketing margin paid by urea and LPG producers as a result of this decision. Further, the rate would be fixed on a non-discretionary basis,” the government said in a press statement.
Had the production from Reliance Industries’ KG-D6 block been 69 million metric standard cubic metres per day (mmscmd), the peak level achieved once in the past, the annual reduction in marketing margin for RGTIL due to the decision would have been R500-800 crore. EWPL has a capacity to carry 80 mmscmd of gas.
According to the government, Wednesday’s decision is likely to enhance transparency and provide an element of certainty for future investments in the gas infrastructure sector. The issue of vast disparity in marketing margins was looked into by the PNGRB. Future escalations in the marketing margin according to the wholesale price index (WPI) would be decided by the ministry of petroleum and natural gas itself, government said.
The issue of whether the government should regulate the marketing margin has been hanging fire for over two years. According to the petroleum ministry, the government needs to regulate the marketing margin for supply of domestic gas to urea and LPG producers as it has implications for the Centre’s subsidy outgo. In other cases, the marketing margin should be decided by buyers and sellers mutually, and any complaints about exercise of monopoly power should be addressed by PNGRB or the Competition Commission.
In November 2013, the petroleum ministry had asked PNGRB to determine the marketing margin for supply of domestic gas to urea and LPG producers, through an independent process.