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

Petroleum board’s new Unified Tariff Structure

Petroleum board’s new Unified Tariff Structure
Petroleum board’s new Unified Tariff Structure

In News:

  • The Petroleum and Natural Gas Regulatory Board (PNGRB) has notified a unified tariff structure for 14 natural gas pipelines.
  • The move is aligned with the government’s emphasis on boosting the consumption of natural gas in the country.
  • The government is aiming to boost the consumption of natural gas which currently accounts for 6.2% of India’s energy consumption to 15% by 2030.

Existing tariff structure

  • The existing tariff is based on the distance of transportation of gas – the longer the distance, the higher is the charge.
  • Due to this, consumers that were at a greater distance had to pay higher charges compared to the consumers who were near the source.

New tariff structure

  • Under the new unified tariff structure, PNGRB has notified a two-zone tariff structure.
  • Under Zone-1, buyers that are within 300-km from the source of gas (gas field or Liquefied Natural Gas import terminal) will be charged a fixed tariff for the transport of gas.
  • Under Zone-II, buyers beyond 300-km from the source of gas will be charged a separate fixed tariff.
  • The tariff for Zone-I will be around 40 per cent of the tariff for Zone-II.
  • Unified tariff will be determined by the Board for each financial year before the start of the financial year.
Impact of the change
  • Entities that are away from the source, for example in Uttar Pradesh, Bihar and especially in the north-east will benefit substantially from the change, as they will now pay a lesser tariff.
  • The new tariff structure would help to create a single gas market in the country by attracting investment into gas transmission infrastructure and make it more easily accessible.
  • However, it will lead to an immediate increase in tariff for companies which use natural gas as an input and have set up fertilizer units and power plants close to gas terminals on the west coast in Gujarat (near the source).
  • The change would have an impact of over Rs 400 crore on fertilizer units located along the Hazira-Vijaipur-Jagdishpur pipeline alone, producing the majority of India’s urea output.
  • The ministry of fertilizers also pointed out that this would lead to an increase in the subsidy burden on the government.

Possible legal challenges

  • Many consumers who already have agreements in place for the transport of gas at lower prices based on the existing tariff, may challenge the current change in the Court.
  • A further legal challenge to the regulation could come from the potential violation of the bidding process through the change in regulations.
  • Experts note that customers located within the first zone of such pipelines are entitled to the low transport tariff rates that were bid by pipeline operators.
  • A hike in tariff rates for them which is likely under the new regulations would be a violation of the bidding process.

Absence of a legal member on the board:

  • There was no legal member on the board of the PNGRB, when the new regulation was notified. This can be another reason for a legal challenge.
  • The position of a legal member on the board of PNGRB has been vacant since March, 2020.
  • The Supreme Court had recently suspended the functioning of the Central Electricity Regulatory Commission for its failure to appoint a legal member.

About: Petroleum and Natural Gas Regulatory Board (PNGRB)

  • Petroleum and Natural Gas Regulatory Board (PNGRB) is a statutory body constituted under the Petroleum and Natural Gas Regulatory Board Act, 2006.
  • PNGRB was established to protect the interests of consumers and entities involved in activities relating to petroleum, petroleum products and natural gas.
  • Its primary functions include regulation of refining, transportation, distribution, storage, marketing, supply and sale of petroleum products and natural gas.

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