PNGRB Perspective: Driving collaborative growth through supportive regulation

Driving collaborative growth through supportive regulation

Natural gas currently contributes about 6.5 per cent towards India’s energy basket. This is low as compared to the global average of about 24 per cent. With growing concerns over pollution and the increasing need for cleaner fuels, the government is trying to increase the share of natural gas in the energy basket to about 15 per cent by 2030. Against this backdrop, the Petroleum and Natural Gas Regulatory Board (PNGRB) is working towards a more collaborative approach to expedite the growth of the segment. The board has awarded 91 geographic areas (GAs) till now to companies across the country for carrying out city gas distribution (CGD) operations. Of these, 78 GAs were awarded till December 2017, while the rest have been awarded from January 2018 onwards. The PNGRB has further identified a total of 174 districts for allocating GAs. Of these, 156 are entire districts, while the remaining 18 are parts of districts.

The PNGRB has, in recent months, been working towards addressing the concerns of the CGD industry. The regulator has observed that some operators have faced issues with state governments and municipalities (while trying to develop CGD infrastructure) such as the levy of high charges for digging and assisting in the laying of pipelines. To resolve this issue, the PNGRB in its role as a facilitator has requested state governments and municipalities to charge standardised rates for these activities. It is requesting these authorities to assist in the development of the CGD segment as these pipelines will eventually benefit the residents living in the concerned municipality.

The PNGRB is also working towards developing a roadmap for unbundling the gas transportation and trading businesses, as it believes that a single utility undertaking both the transport and marketing of gas could lead to unfair trade practices. It has already issued Regulation 5 for the entity-wise unbundling of utilities, which is expected to come into effect within a year.

In addition, the PNGRB is working on revising the bidding criteria for allocating GAs in the forthcoming bidding rounds. In the revised criteria, 50 per cent weightage is being given to the number of piped natural gas connections that the bidding utility will provide in the GA. Appropriate weightage is also being given to other parameters such as the development of associated infrastructure (length of pipeline, number of compressed natural gas [CNG] stations committed by the bidder) and the transmission tariff quoted for CGD. These revised bidding criteria are expected to come into force by early April 2018. Bids for the upcoming ninth round of CGD bidding are expected to be closed by end-June 2018 and the GAs are expected to be awarded by August 2018. The PNGRB is offering CNG retailing licences in 100 cities for bidding on these revised terms.

The regulatory authority is also working on creating a natural gas trading hub in compliance with the existing provisions of the PNGRB Act. The government has already allocated a consultant for this through the Oil Industry Development Board. The PNGRB will lay down regulations for the hub. It is currently contemplating multiple options such as allowing only physical delivery of products or permitting financial derivatives as well, which lead to more depth in the market and a better price discovery. This trading hub is expected to commence operations in about a year and a half.

The PNGRB foresees that there will be a significant requirement for skilled manpower in the industry. It has therefore requested consulting firms to create technical and commercial training modules for manpower in the industry. Further, technology consultants have also been requested to develop appropriate software for running CGD operations.

Till now, 15,000 km of natural gas pipelines have been commissioned in the country. However, some of the under-construction and proposed pipeline projects have seen delays. The PNGRB is now considering a revised model for the development of natural gas pipelines to provide natural gas across the country and ensure appropriate returns to the investor.

In conclusion, the PNGRB has clearly indicated its stand to adopt a more collaborative approach for developing the country’s CGD network by taking all stakeholders on board and providing a more supportive regulatory environment. To this end, it is holding regular meetings with relevant state and central government bodies and requesting their assistance in facilitating the development of a CGD network.

Based on an address by Dinesh K. Sarraf, Chairperson, PNGRB, at a recent India Infrastructure conference