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Price deregulation of natural gas key for success of unified tariff regime

Price deregulation for the complete domestic natural gas sector would be key towards making a unified tariff regime successful and increasing the share of natural gas in the overall energy mix of the country, rating agency ICRA has said.

The rating agency said while moving towards a Unified Tariff Regime is a positive step towards increasing the share of natural gas in the overall energy mix of the country, several other steps will have to be implemented till we see a meaningful uptick in natural gas consumption in the country.

Some of the reforms that have been long pending include the pricing deregulation of natural gas in the country, inclusion of natural gas under the Goods and Services Tax (GST), development of integrated pipeline network and development of an integrated gas trading hub/exchange are some of the reforms government will have to undertake to make any meaningful impact on natural gas offtake in the country, it said.

Some of the other steps that have also remained under consideration include unbundling of the marketing and transmission business of GAIL (India) Limited and an independent system operator for pipelines, the agency added.

The downstream regulator, Petroleum and Natural Gas Regulatory Board (PNGRB) has released draft regulations pertaining to implementation of Unified Tariff Regime (UTR) for the natural gas pipelines on September 29, 2020. The draft regulations essentially propose pooling of the existing approved tariffs of the pipelines comprising the National Gas Grid to arrive at one single tariff to be charged across and will be called the Unified Pipeline Tariff.

The new regime also does away with the additive nature of the tariff to a large extent wherein earlier a consumer receiving natural gas flowing through multiple pipelines had to pay tariff for all the pipelines leading to the additivity of the tariffs. The draft regulations will remain revenue neutral for the gas pipeline operators although there will be redistribution of the transmission tariffs being paid by the consumers post the implementation of these regulations.

The board has sought comments/views from various stakeholders by October 20 and will be holding an open house on October 29 for discussing the same.

Commenting on the development, K. Ravichandran, Group Head & Senior Vice President, ICRA said, "In the current tariff regime, farther a player is located from the natural gas source, more the consumer pays for the transportation of the natural gas, thus resulting in concentration of gas based industries near the natural gas sources.

"For consumers located away from the natural gas sources, a significant portion of the natural gas cost comprises the transmission tariff due to higher approved tariffs and additive nature of the transmission tariffs. With the implementation of the Unified tariff regime, this pricing linked dislocation in the natural gas pricing will be done away with.".