Amended PNGRB Act to give legal teeth to petroleum sector regulators

CGDs say they can't hand over access capacity to new entities without more details from govt

A long-pending amendment to the Petroleum and Natural Gas Regulatory Board (PNGRB) Act, 2006, expected in the coming months, will give the sector regulator enough legal teeth to enforce its plan to reclassify natural gas pipelines as “common carriers”, a top PNGRB official told Business Standard.

As a result, the ongoing tussle between PNGRB and aggrieved city gas distributors (CGDs) over the issue is soon feared to intensify after a lull. Legacy CGD players insist that the plan needs more clarity on operational grounds and staunchly maintain that they can't hand over access capacity to new entities without more details from the government.

The “common carrier” principle allows all producers and consumers access to fuel transport infrastructure by appointing independent gas pipeline operators. "Declaration of city gas pipeline networks as common carrier will bring in fresh investments, open the markets for competition and efficiency, and will lead to growth of the market size. This has been the experience in gas markets in other parts of the world," a senior official at PNGRB told Business Standard.

A series of legal actions initiated by PNGRB against legacy CGD players like Indraprastha Gas Ltd (IGL) in Delhi/NCR and Mahanagar Gas Ltd (MGL) in Maharashtra had been shot down at various courts. But the amended Act will give the regulator further legal backing. It provides for more clarity in how to deal with this barrage of litigations as well, the official stressed.

Inevitable tussle

City gas players need more clarity on which networks will come under the common carrier principle, how access capacity may be divided, the type of new players who will be allowed to come in, and whether they will have mandatory responsibilities, said Kamal Kishore Chatiwal, managing director of IGL.

He said the state-run firm has an interconnected network, and it is difficult to divide a connected gas pipeline. "Our infrastructure is not built for this. If a new player asks for an unutilized part of the network, we can give them. But if they demand access in prime areas such as those in Central Delhi, it's not possible," Chatiwal said.

"In principle, we are in agreement that this should happen for the growth of the sector. But specific details are still not known. We don't know which network it will apply to — steel, medium-density polyethylene (MDPE), or CNG. Also, it should not happen that some players come in, take the cream of the business without doing any work, or focusing on city gas distribution. If there are targets for them, then we have no issue," Chatiwal added.

PNGRB has countered this argument by floating the concept of transport system operator (TSO) to be incorporated to manage the gas pipeline infrastructure's common carrier. The TSO will be entrusted with the task of booking pipeline capacity for gas transport from producers to consumers on payment of a fee, to be decided by the regulator. An amended PNGRB Act will also provide more legal backing for setting up the TSO, the official mentioned above said.

Meanwhile, CGD players have also contested the principle in court on the argument that it was not part of the bidding guidelines when the rights for gas transportation and marketing were offered.

The government currently recognizes natural gas pipelines as either contract carriers, where capacity is made available to any other entity under a firm contract, or as common carriers, where the original licensee has to permit about 20 per cent or more of its network capacity for use by other suppliers, normally for a period of less than one year.

Natural gas pipelines are a widely accepted mode of bulk transportation of natural gas from a source to a delivery point on a particular route. The concept of natural monopoly in transportation of natural gas is universally accepted, given its capital intensiveness and safety factors.

The city gas companies have stated any move infringing on their infrastructure exclusivity will severely harm their businesses, while also allowing third-party marketers and shippers to cherry pick customers and charge much higher for gas, often to the highest-paying buyer.