Petroleum and Natural Gas Regulatory Board approves provisional gas tariff structure

Petroleum and Natural Gas Regulatory Board (PNGRB) has provisionally approved tariff rates for three natural gas pipelines, namely, the East-West Pipeline Project (EWPL) operated by Reliance Gas Transportation Infrastructure Ltd (RGTIL), the existing HVJ-GREP-DVPL network operated by GAIL and the DVPL/GREP Upgradation project operated by GAIL.

The regulator has approved gas transmission tariff of Rs. 52.23 per million Btu (mmbtu) for the EWPL, as against the RGTIL proposal of Rs. 53.64/mmbtu. The tariff rates for the HVJ-GREP-DVPL and DVPL/GREP Upgradation projects have provisionally been approved at Rs. 25.46/mmbtu and Rs. 53.65/mmbtu, respectively. GAIL’s proposal to increase tariff rate for existing HVJ-GREP-DVPL from the existing Rs. 28.48/mmbtu to a single levelized postal based tariff of Rs. 35.39/mmbtu (including DVPL/GREP Upgradation) has not been accepted by the board, as it would result in higher tariff charges for the existing customers.

The provisional tariffs will be applicable from the date of commission for the EWPL (i.e. 1-April-2009); and retrospectively from 20-Nov-2008 for existing HVJ-GREP-DVPL; and from the date of commissioning for the DVPL/GREP Upgradation. It may be noted that the tariff rates are provisional only and may be finalized on later date by the PNGRB on receipt of actual data by the operator.

“The board’s decision is a step forward and likely to provide more regulatory clarity to the gas transmission business” commented Ms. Revati Kasture, Head of Research, CARE Ltd. The provisional tariff structure is very positive for GAIL, as the 10.6% decline in its existing HVJ-GREP-DVPL pipelines would be outwitted by an increase of 88.4% in the DVPL/GREP Up-gradation, implying significant upside in future tariff revenues. CARE Research estimates that the proposed tariffs charges would imply tariff revenue of about Rs 19 billion from existing network and Rs 36 billion from up -gradation, totaling to Rs 55 billion for GAIL in 2010-11, as against Rs 49 billion proposed by GAIL under levelized postal based tariff of Rs. 35.39/mmbtu.

However, the tariff charges are applicable retrospectively from 20-Nov-2008 for existing HVJ-GREP-DVPL network. This would result in one-time pre-tax charges of Rs 3.1 billion for GAIL due to higher tariff charged to existing customers. Whereas, RGTIL is likely to show tariff revenues of about Rs 54 billion in 2010-11 as a result of the tariff structure. The one-time pre-tax charges due to retrospective implementation would be Rs 0.8 billion in case of RGTIL. The government has shown inclination towards approving an overall capital expenditure in range of Rs 1.5 million-per-km-per-mmscmd, and we expect this to remain as benchmark for future pipeline projects. On the other hand, the board has adhered to its volume provisions specified under the “Determination of Natural Gas Pipeline Tariff” by not accepting RGTIL’s higher volume assumptions and GAIL’s unaccounted gas volume assumptions
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