Favourable Developments: Key regulatory initiatives in the CGD segment

Key regulatory initiatives in the CGD segment

To meet the ever-expanding energy requirements, the role of natural gas is becoming increasingly important. In the coming years, it is poised to become even more crucial as the Petroleum and Natural Gas Regulatory Board (PNGRB), the regulator of the midstream and downstream gas segments in India, aims to increase the share of gas in the country’s energy mix from the current 6.2 per cent to 15 per cent by 2030.

The importance of natural gas cannot be emphasised enough as it offers several advantages over conventional energy sources. It is not only environment friendly, but is also cheaper than liquid fuels such as petrol and diesel and liquefied petroleum gas. The host of benefits that natural gas as a fuel offers could be an enabler in meeting the country’s COP 21 commitments on carbon emissions. The share of natural gas in the total energy mix has come down from 8.9 per cent in 2010 to 6.2 per cent in 2017, after reaching a maximum of 10.5 per cent in 2013. This decline is primarily due to the depleting reserves of Reliance’s Krishna-Godavari Dhirubhai 6 basin, which was finally closed down in September 2018.

Recent regulatory developments

The PNGRB has three areas of focus – the development and expansion of city gas distribution (CGD) networks, successful completion of the a national gas grid (NGG) and establishment of gas trading hub/exchange. In 2018, the PNGRB successfully concluded the ninth CGD bidding round, wherein 86 geographical areas (GAs), covering 156 full and 18 partial districts were offered. Bids were received for all the GAs and these awarded to the successful bidders in September 2018. To ensure the success of this bidding round, certain regulatory changes were introduced. These included an increase in the time given for achieving financial closure and establishing tie-ups from 180 days to 270 days; and an increase in the market exclusivity period from five to eight years. Meanwhile, the tenth bidding round, which is proposed to cover 100 districts in 50 GAs, is also expected to be initiated soon. Meanwhile, the progress of the NGG has been satisfactory. Bids have been invited for the construction of two pipelines – Kanai-Chatta-Srirampur in West Bengal and Langtala-Bhilwara in Rajasthan. Bids for another three pipelines crucial for the completion of the NGG, the Srikakulam-Angul, Tuticorin-Kanyakumari-Kochi and Mumbai-Nagpur-Angul pipelines, are expected to be invited in the next few months.

The PNGRB is also making rapid strides towards the establishment of a gas trading hub, the work for which was entrusted to it by the government in June 2018. Once the trading hub is established, gas prices will become market-driven in contrast to the government’s current practice of tariff fixation using a formula, which is not remunerative enough for gas producers.

Besides, the PNGRB is making concerted efforts towards the expansion of India’s gas pipeline network. Recently, in September 2018, tariff orders were issued for seven new natural gas pipeline projects. These are the Dadri-Panipat natural gas pipeline (Indian Oil Corporation Limited), the Dahej-Uran-Panvel-Dabhol natural gas pipeline network (GAIL), the low-pressure Gujarat gas grid (Gujarat State Petronet Limited [GSPL]), the high pressure Gujarat gas grid (GSPL), the Agartala regional natural gas pipeline (GAIL), the Dukli Maharajganj natural gas pipeline (GAIL) and the Gujarat natural gas pipeline network (GAIL). Further, a public consultation document has been issued for tariff processing of three major cross-country gas pipelines. The regulatory board will issue more tariff orders by March 2019.

Key issues and challenges

The successful completion of 12,000 km of under-construction pipeline projects is expected to involve several challenges relating to obtaining clearances and approvals, involvement of multiple stakeholders and shifting of underground utilities. In March 2018, the PNGRB cancelled GAIL’s licence to build the Surat-Paradip pipeline due to non-completion even after five years of authorisation. Another issue is the exclusion of natural gas from the ambit of the goods and services tax, the decision for which is awaited from the government. Besides, decisions on the creation of an independent transmission system operator, quantity of gas available for trading, etc, are also awaited. The increasing number of litigation cases is another cause for concern.

Future plans

In the coming months, the PNGRB plans to launch the tenth CGD bidding round. For the upcoming rounds, the regulator is considering revising the bidding criteria and the current financing model for natural gas pipeline projects. Besides, work on the implementation of a standard gas transportation agreement has been initiated. Going forward, continued government support in terms of the introduction of appropriate policies and regulations and the development and upgradation of infrastructure will be essential to realise the target of increasing the share of natural gas in India’s energy mix to 15 per cent.

Based on a presentation by S.P. Garg, Member, PNGRB, at a recent India Infrastructure conference