Gas consumers object to government’s pipeline tariff rationalisation plan

By: |
July 29, 2020 5:25 AM

However, PNGRB’s draft amendment proposes that unified tariff would be applicable only on the integrated trunk pipeline network of state-run GAIL and Gujarat State Petronet Ltd (GSPL), leaving out 30% of the current gas pipeline capacities.

IOCL refineries use more than 2 million metric tonne of gas per annum and the consumption will rise as it plans to connect more refineries to the gas network.IOCL refineries use more than 2 million metric tonne of gas per annum and the consumption will rise as it plans to connect more refineries to the gas network. (Representative image)

Industrial consumers of natural gas have objected to the government’s plan to rationalise gas pipeline tariffs, claiming that the new proposed mechanism, if implemented, would unduly favour customers located far away from the LNG import terminals and gas production units. Industry representatives also pointed out that since the new tariff structure will not be imposed on all the gas pipelines in the country, it will lead to market distortion as customers will end up paying under multiple tariff regimes, depending on the pipelines used by them.

In order to develop new gas markets in far flung areas, the government has decided to rationalise gas pipeline tariff structure as the current additive pricing system raises pipeline charges every 300 kilometres, discouraging potential consumers located in areas far from the gas production facilities and import terminals (injection points). To that end, the petroleum and natural gas regulatory board (PNGRB) is seeking to make amendments to pipeline tariff regulations for the determination of “unified tariff”, wherein transport rates beyond 300 kilometres of the injection points would be the same all across the country.

However, PNGRB’s draft amendment proposes that unified tariff would be applicable only on the integrated trunk pipeline network of state-run GAIL and Gujarat State Petronet Ltd (GSPL), leaving out 30% of the current gas pipeline capacities.

Under the proposed mechanism, gas produced or imported at west coast and transported through the integrated networks will be subjected to single tariff, but gas procured from the eastern or southern regions (such as KG Basin, Cauvery Basin, Mahanadi Basin) which needs to be transported using pipelines outside the ambit of unified tariff regime, will be subjected to additive tariffs.

“A unified transportation tariff unduly favours the customers who are located at a distance from the gas source as this results in cross subsidy to them from customers who are located at the source,” the federation of Indian chambers of commerce and industry (FICCI) told PNGRB when it sought stakeholders’ comments on the proposal. FICCI also pointed that unified gas pricing would be against the producing states, as they will lose their advantage for attracting industrial investment that consume gas.

State-run oil refining and marketing company Indian Oil Corporation Ltd (IOCL) pointed out that most of its refineries are within 300 kilometres of injection points and if the proposed structure is implemented, the company will end up paying “considerably high transportation cost for its captive consumption”. IOCL refineries use more than 2 million metric tonne of gas per annum and the consumption will rise as it plans to connect more refineries to the gas network.

“By not including Kakinada to Gujarat pipeline in integrated pipeline system, the proposed unified tariff regime inadvertently incentivises (imported) LNG over east coast domestic gas resulting in adverse impact on exploration and production activity and goes against the Prime Minister’s ‘Make in India’ and ‘Atmanirbhar’ vision,” BP Exploration (Alpha) Ltd stated.

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