Regulator weighs moving to gas entry-exit tariff model

NEW DELHI: The Petroleum and Natural Gas Regulatory Board (PNGRB) is considering a gas transmission tariff reform that would allow the tariff to be fixed separately for each entry and exit point of the pipeline, a shift from the current distance-based pricing, said its chairman Dinesh Kumar Sarraf.

PNGRB, the downstream regulator, has begun discussions on adopting the entry-exit tariff model in the Indian gas market. “We are analysing whether we should leapfrog to entry-exit or go via unified tariff model,”

Sarraf told ET. “If we are convinced that entry-exit is the way to go, we will implement it by March.” Under the entry-exit model, available in the European and North American gas markets, a customer books the capacity for his desired entry and exit point and pays a separate tariff for the entry and for the exit.

A unified tariff model works like a postage stamp, with the customer paying the same transmission rate irrespective of the distance the gas travels. Both are different from the current system where a user is charged based on distance.

In both the proposed systems, the pipeline operator’s return on investment wouldn’t change but the way the user pays would.

Under the entry-exit model, the places where the domestic gas and liquefied natural gas (LNG) enter the national pipeline grid would become the entry points.

Exit points would be closer to consumers’ facilities. Tariff for more congested entry points such as in Gujarat would be higher, pushing the customer to less congested and cheaper entry points on the eastern coast. “This would lead to more efficient allocation of national pipeline capacity,” said Sarraf.

Similarly, congested exit points, with higher tariff, would induce pipeline builders to respond to the market needs and build new capacity, he said.

The unified tariff would put to disadvantage such industries that were set up to be close to the source of gas and save on fuel transportation cost, Sarraf said. With unified tariff, cost of gas for industries in Gujarat and neighbouring states would rise while for those in eastern states would fall.

Unlike in unified tariff regime, the rate in entry-exit model can be reviewed much faster, Sarraf said. More data from producers and consumers will be available, making decisions on tariff fixation easier, he said.