The past couple of years have proved to be quite eventful for India’s natural gas sector. The sector regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB), has played a key role in reviving growth in the downstream segment. From introducing a slew of regulatory changes to successfully conducting ten rounds of city gas distribution (CGD) licensing, the PNGRB has been much appreciated by the gas industry. At a recent India Infrastructure conference, S.P Garg, member, PNGRB, talked about the recent regulatory developments in the downstream segment, new regulatory developments for the CGD and gas transmission segments and key unaddressed issues. Excerpts…
Key measures taken
The PNGRB has taken a number of regulatory initiatives in the past two years. In April 2018, it notified regulations governing authorisation of CGD licences. The changes were well timed to generate interest in Rounds 9 and 10 of bidding and met with huge success. Licences for over 130 geographical areas were awarded in the two rounds taken together, enhancing the country’s CGD coverage from 20 per cent of the population to about 70 per cent.
- After spurring activity in the sector, the PNGRB is now focusing on monitoring on-ground progress with regard to works committed under the minimum work programmes of the new licences. The regulator is also creating a supportive environment by holding regular interactions with various state governments to streamline the procedures for laying pipeline infrastructure.
- With regard to tariffs for product pipelines, it is likely that the benchmarking against alternative modes of transport such as rail will continue in 2020. For gas pipelines, the PNGRB held extensive stakeholder consultations, after which it released the tariff orders. This participatory approach has reduced litigations in the sector considerably.
Work under way
One of the most important initiatives in the offing pertains to the development of a gas trading hub. As of November 2019, the regulator awaited certain government approvals on issues such as inclusion of gas under the goods and services tax regime, unbundling of transmission and distribution/marketing of gas, establishment of an independent transmission system operator, and volumes of gas to be allocated for the trading hub.
Works are also ongoing to address issues related to natural gas pipeline authorisations. Over the years, it has been realised that many pipelines are not being constructed due to economic reasons faced by the companies. It is understood that the PNGRB will notify revised guidelines for gas pipeline authorisations that will also address some of the tariff-related issues. The regulator is evaluating the introduction of the entry-exit tariff model instead of the unified tariff model.
Another key initiative by the regulator is conducting the National Gas Grid Study. The study has been undertaken to assess which areas have high gas demand so that pipeline development can be prioritised according to the demand patterns. The idea is to first lay the gas pipeline network in areas that are major demand centres. Later, areas with feeble gas demand can be connected to the gas grid.
As the sector matures, there still exist some issues that require further regulatory attention. Sharing of volume risk between pipeline companies and end consumers is one such area. At present, the entire volume risk is borne by the pipeline companies. This has often resulted in a number of players failing to lay pipelines, due to lack of economic viability. The regulator is therefore exploring ways to balance the risk between the consumers and pipeline entities.
Another area that warrants attention is getting “rights of user” permits for laying pipeline networks. In this regard, the PNGRB has acknowledged the urgency to address the issue and expects active industry participation to devise solutions. Besides, rules to end natural gas distributor monopolies in 34 cities across the country are also in the offing.
The bottom line
The key issues plaguing the industry are well known and the regulator is playing its part in addressing them. New initiatives such as an area-wise study for demand assessment and revision of the tariff model applicable to gas pipeline networks herald a promising future for the sector.