Sector Update |
Oil & Gas
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A deep-dive into the draft regulation for unified tariff
The Petroleum and Natural Gas Regulatory Board (PNGRB) is in the process of
formulating a single tariff across integrated pipeline network, in line with the aim to
reduce transportation cost for natural gas for longer distances.
The announced open house for the determination of a unified tariff, in respect of
Integrated Natural Gas Pipeline System, attracted various comments from
stakeholders. Amid this, we garner the comments to highlight the various bottlenecks
that remain to be answered by the regulator.
Public Consultation Document
Looking into the past for unsolved puzzles…
The regulator had attempted to announce a unified tariff in 2018 as well, when
many of the prime stakeholders had raised concerns about the idea despite
agreeing to its implementation for the greater good.
Most of the stakeholders have raised a similar concern that selective unification
would lead to inefficiencies and pancaking would still pose an issue. Also, there
are concerns regarding an increase in input cost for consumers (as in 2018):
IOCL mentioned that refinery input cost would increase by INR1b.
Torrent power commented that an increase in tariff would increase the
power cost and make power production unviable.
The issues/concerns in 2018 still persist and are the main choke point for
unified tariff in 2020 as well
(refer exhibit 5):
Joining the debate, in the recent open house, the Fertilizers Association of
India highlighted that a unified tariff would lead to an increase in tariffs and
may prove disadvantageous for urea manufacturers.
Some new upcoming LNG terminals (in Gujarat) and newly awarded CGD
players stated the end consumer would have to pay an increased unified
A major point of debate is the depreciation of very old pipelines (such as HVJ by
GAIL, the cost of which is being fully depreciated). While, GAIL has raised
concerns over discrimination in capacities between the central government-
authorized pipeline and other pipelines.
PNGRB, in its draft document (on 29
Jun’20), has once again invited
suggestions/comments from various stakeholders.
However, the proposed
amendments of a differentiated zonal tariff (initial 300km as zone I and the
rest of it as zone II, with the tariff not lower than that of zone I) and the non-
inclusion of bid-out pipelines in the integrated list remain as they were.
The integrated natural gas pipeline system (refer
exhibit 7 and 8
~266mmscmd, i.e., ~80% of the total pipeline network in India) does not include
the onshore pipelines of IOCL (~10mmscmd) and RIL (~71mmscmd).
RIL, in its comments during the open house, stated this would discourage the
use of domestic gas production (40–45mmscmd expected from the KG D6 basin
over the next two to three years) as the tariff would continue on an additive
basis v/s the unified tariff applicable on LNG imports.
Diving into the comments offered by the legal entities and Advocates of the
Supreme Court of India
(refer exhibit 6):
Priming a new way to look at CGDs
…and comparing them with the future for probable answers…
Swarnendu Bhushan- Research Analyst
Sarfraz Bhimani - Research Analyst
6 August 2020
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