Explainer- Gas sector needs sound regulation

Explainer: Gas sector needs sound regulation

India’s gas economy is facing severe constraints owing to stagnant domestic output. While a high-level panel recently backed pricing freedom, issues relating to regulation of pipeline networks also need addressing. Against this backdrop, there are plans to amend the PNGRB Act. Rajat Mishra takes a look at the gas-economy norms.

Regulation of the gas sector 

An entity that lays the pipeline will have the right of first use, and others must pay it for use of the pipeline. Businesses must register with the PNGRB to market petro-products and natural gas, set up/operate terminals and storage beyond specified capacities. PNGRB orders can be challenged before the appellate electricity tribunal, and then courts.

PNGRB’s powers & limitations

The PNGRB can impose fines up to Rs 25 crore for non-compliance, with additional fines of up to Rs 10 lakh for every day of continued contravention of orders. Wilful failure to comply with appellate tribunal orders may draw a fine of up to Rs 1 crore; subsequent offences will attract fines up to Rs 2 crore, and continuing contravention, fines of up to Rs 20 lakh/day.

The board lacks a clear mandate to ensure competitive gas markets. Gas price is regulated separately by the Centre. While many back scrutiny of costs, others say free pricing will ensure more upstream investment, and competition will foster fair play. The PNRGB also can’t ensure retail service obligations. It is also argued that the pipeline tariffs fixed by it on the basis of common carrier principle don’t incentivise efficiency much. The regulator is also not seen as having been effective in thwarting monopoly creation in city gas distribution.

Pricing and other new developments

Prices are bench-marked against four international hubs —Henry Hub (USA & Mexico), Alberta (Canada), National Balancing Point (EU) and Russia. The prices are revised on a half-yearly basis. Given Russia’s war against Ukraine, global LNG prices have skyrocketed and the price ceilings for domestic gas in H2FY23 hit record highs — $8.57 for normal fields and $12.46/ mmBtu for difficult fields like those in the KG basin, off the Andhra coast (In H2FY21, the price for difficult fields was capped at $1.79).  The Kirit Parikh committee has recently proposed a lower price band of $4-6.5 mmBtu for the short term for normal fields, but pitched for complete pricing freedom for producers by January 2027.

The Centre is mulling changes to the PNGRB Act, especially for areas of its regulation that have spurred much debate and litigation (such as the PNGRB’s attempts to enforce common carrier rules).

What are the recent changes in regulations that the PNGRB has brought in?

It has proposed to introduce unified pipeline tariffs effective FY24. The motto is One Nation, One Grid, One Tariff. It formed a committee — which also comprises industry executives —to address settlement issues that may arise once the new regulations are implemented. Analysts say the move would spur pipeline capacity expansion and completion of pending projects, thereby making piped cooking gas and city gas accessible to larger sections of the population.

According to the plan, entity-level integrated tariffs will act as the building blocks for the proposed unified tariffs. The number of unified tariff zones have been increased from two to three. Tariff regulations are being eased to promote faster capacity creation. New capacities will be exempt from tariff regulation for five years, new tax rates will apply only prospectively. Annual tariff adjustments will be made. India’s gas pipeline network is expected to rise from 16,000 km in FY19 to 34,600 km by early 2024. Piped gas connections will reach 60 million by 2030 from the current level of around 10 million, per one estimate. LNG terminals’ capacities will cross 62 million tonne per annum (mtpa) from less than 40 mtpa now.