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Tuesday, September 22, 2020

Unified gas transport tariff: Industry players object proposal, cite higher cost for consumers close to source

Industry players have raised objections, citing higher costs for consumers near gas sources, as well as adverse impact on the use of domestically produced gas if the proposal is accepted.

Written by Karunjit Singh | New Delhi | August 3, 2020 3:15:57 am
Industry body FICCI also noted that the proposal would work against gas-producing states as they would lose their advantage in attracting investment from gas-consuming industries. (File)

Major players in the natural gas sector have raised objections to the government’s proposal to implement a unified gas transport tariff for integrated gas transportation networks, including a network of seven GAIL pipelines and a network of two Gujarat State Petronet Ltd pipelines.

The proposal by the Petroleum and Natural Gas Regulatory Board (PNGRB) is aimed at boosting overall gas consumption by rationalising gas transportation costs for consumers located further away from LNG terminals which are predominantly located on the west coast of the country.

Industry players have raised objections, citing higher costs for consumers near gas sources, as well as adverse impact on the use of domestically produced gas if the proposal is accepted.

Currently, tariffs for transportation of gas are set by the PNGRB separately for each pipeline based on the assumptions of volume of gas transported on the pipeline and its operating life, aimed at providing the operator a post-tax return of 12 per cent. Tariffs for pipeline usage are divided into zones of 300 km with the tariff increasing for zones further away from the point where gas is injected. Further, if a buyer needs to use multiple pipelines even from the same operator, his transport tariff would increase. These tariffs increase the cost for buyers of gas further away from the point of injection of natural gas.

The PNGRB has proposed a unified price system with one price for those transporting gas nearby, within 300 km, and one price for those transporting gas, beyond 300 km. This would fix tariff prices within the integrated pipeline networks of GAIL and GSPL.

Major companies, involved in the production and distribution of gas have raised objections to the proposal pointing out that consumers using pipelines outside the proposed integrated pipeline network would still have to pay additive tariffs for the use of multiple pipelines and that the unified tariff structure would likely lead to higher tariffs for consumers near the gas source.

In its comments to the PNGRB, Indian Oil Corporation (IOC) noted that it currently consumes 2 million metric tonnes of regasified natural gas every year and that as most of the company’s refineries are in areas close to the source of gas, the proposal would likely lead to significantly higher tariffs for consumers such as IOC.

Industry body FICCI also noted that the proposal would work against gas-producing states as they would lose their advantage in attracting investment from gas-consuming industries. “… the consumers at source, both current and future, will end up subsidizing consumers away from the source. This will lead to cross subsidizing which is undesirable,” it said in its comments to the PNGRB. FICCI noted that the impact of the proposal would be similar to that of the “freight equalisation” policy implemented around 40 years ago, under which the transport cost of minerals was subsidised by the Centre, which was found to be non-viable and eventually done away with

FICCI also noted that industrial units using gas set-up close to gas sources would lose their cost advantage to a similar unit which has been set up far away from the port if the freight for gas was equalised.

An industry expert, who did not wish to be quoted, said that while concerns around cross subsidisation were legitimate, the government was focussed on boosting gas consumption and would likely move forward with the unified tariff scheme.

Reliance Industries (RIL), in its comments to the PNGRB, noted that the proposal would disincentivise the consumption of domestically-produced gas from the Krishna Godavari Basin as it is not connected to the proposed integrated gas network. RIL said that having the tariff on domestic gas on an additive basis with tariffs on imported LNG being unified would run “contrary to the vision” of an “Atmanirbhar Bharat” as set out by the government.

Adani Gas, the distribution company for piped natural gas and compressed natural gas, also noted that the proposal would lead to a rise in gas transport tariffs for consumers near the source of natural gas, stating that a consumer in Gujarat using the pipeline of two entities would still pay additive tariffs under the proposed regime. It called for a single national grid with single entry-exit tariff for long-term simplification of the transport tariff regime.

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