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Petroleum board’s new unified tariff structure – its impact and challenges in implementation

Topics Covered: Infrastructure- Energy.

Petroleum board’s new unified tariff structure – its impact and challenges in implementation:


Context:

The Petroleum and Natural Gas Regulatory Board (PNGRB) has notified a new tariff structure for 14 natural gas pipelines.

 What is the change?

Under the new unified tariff structure, buyers will be charged a fixed tariff for the transport of gas within 300 kms of a source and a fixed tariff for the transport of gas beyond 300 kms on a single pipeline network.

  • This, PNGRB says, would be significantly cheaper for buyers further away from the source of gas that were earlier charged on the basis of the number of pipelines used and the distance from the source of gas.
  • Therefore, a buyer using multiple pipelines in GAIL’s networks would likely benefit significantly from this change.

How does this impact gas transmission companies?

  • The changes in the tariffs will likely incentivise greater investment into gas transmission infrastructure as natural gas becomes more affordable for users further away from the west coast of the country.
  • Gas transport tariffs are set to provide a “reasonable rate of return” on normative levels of capital employed and operating costs for pipelines, according to the PNGRB.

Who loses out?

A number of companies which use natural gas as an input have set up fertilizer units and power plants close to LNG terminals on the west coast. The cost of gas for them may rise noticeably.

  • The move was similar to the now defunct “freight equalisation” policy introduced by the government in 1952 under which the government subsidised the transportation cost of minerals to areas further away from the sources of minerals.

Challenges ahead:

  1. The new regulations will lead to a significant hike in the cost of gas transportation for many consumers who may already have agreements in place for the transport of gas at lower prices based on the existing regime.
  2. A further challenge to the regulation could come from the potential violation of the bidding process for bid-out pipeline through the change in regulations.
  3. Another potential avenue for a legal challenge could be the absence of a member (legal) on the board of the PNGRB at the time the regulation has been notified.

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InstaLinks:

Prelims Link:

  1. About PNGRB.
  2. Overview of the new tariff structure for natural gas pipelines.
  3. What is natural gas?
  4. Applications.

Mains Link:

Discuss the potential of natural gas reserves in India.

Sources: Indian Express.