GAIL: Regulator's zonal gas pricing not sensible

GAIL India, the government-owned gas transportation and distribution company, has suggested the present zonal rate structure for gas is a flawed policy. It has, instead, suggested a ‘postalised’ rate, meaning a single transmission rate along a network, needed, it says, for equitable distribution and supply.

B C Tripathi, chairman and managing director of GAIL, told Business Standard the existing zonal rate structure ordered by the Petroleum & Natural Gas Regulatory Board (PNGRB) does not provide a level playing field. States situated nearer to the gas fields, such as Maharashtra, Gujarat and Andhra get it cheaper; landlocked places such as Punjab, Haryana, Uttar Pradesh and Delhi have to pay more.

“The structure creates a disparity. The incremental zonal tariffs (rates) and higher upgradation tariffs would have adverse implications for all consumers located far away from supply source(s) and/or who would be contracting new/incremental gas supplies. This poses a major challenge to the policy objective of ensuring availability in all parts of the country and to achieve equitable growth of the sector,” Tripathi said.

Presently, rates rise incrementally after every 300 km. So, all consumers located beyond 300 km of the point of injection of gas into a pipeline system would pay more vis-à-vis competitors located within 300 km of the entry point. Hence, this would incentivise future market developments nearer to the gas sources.

By PNGRB’s recent decision, while the weighted average rate of the existing Hazira-Vijaipur-Jagdishpur (HVJ) line would be Rs 25.46 per million British thermal units (mBtu) (Rs 942/1,000 standard cubic metres), the weighted average rate of its upgradation would 210 per cent higher, at Rs 53.65 per mBtu (Rs 1,986/1,000 scm) This higher by 210%.The lower pipeline rate would be applicable only to existing consumers, (with vintage/depreciated plants along the pipeline), while the much higher pipeline rate of Rs 53.65 per mBtu would be applicable to all new consumers in the pipeline corridor. In other words, customers located in the same zone and procuring gas from the same sources may be paying two different rates, depending on whether they were ‘existing’ customers or ‘new’ customers of the pipeline system, the official said.