SC primes the pump on retail gas pricing, scuttles PNGRB

Major boost for city gas distribution investments

In what could turn out to be a major boost for fresh investments in the city gas distribution (CGD) sector and allow companies to fix prices, the Supreme Court on Wednesday held that the downstream regulator Petroleum and Natural Gas Regulatory Board (PNGRB) has no power to fix or regulate network rates.

The order came in a response to a petition filed by the regulator appealing against a 2012 order of the Delhi High Court that had stated there were no statutory provisions that allowed PNGRB to fix retail gas prices. The apex court on Wednesday upheld that order, announcing victory for the petitioner, Indraprastha Gas (IGL), in its legal battle with the board.

“The power to fix the rate has not been given to the board. In view of that, the board cannot frame a regulation which will cover the area pertaining to determination of network tariff for (Delhi) city or local gas distribution network and compression charge for CNG,” the judgement said. “As the entire regulation centres around the subject, the regulation deserves to be declared ultra vires,” it added.

PNGRB had in April 2012 directed IGL to reimburse up to 64 per cent of the retail rates charged to consumers with retrospective effect of five years. IGL had challenged in the Delhi High Court the directive issued by the board arguing the Act empowered the board only to fix the transportation rate; that the transportation rate is to be charged either by a common carrier or a contract carrier of gas from a person engaged in marketing of gas, for moving the gas.

IGL further argued that the Act nowhere authorised the board to fix the price to be charged by a marketer of gas from its consumers. This view was accepted by the high court. The Delhi government and the Centre had also supported IGL on the issue.

PNGRB then approached the Supreme Court last year arguing while it has no power to control the final retail price, it has jurisdiction on fixing transmission rates. It pointed out several letters in which gas distributing companies had accepted its power to fix tariff. However, the bench headed by Justice Dipak Misra upheld the high court judgment, handing over victory to the gas distributing companies to fix price.

“Major investments in the CGD sector were held up as companies were waiting for the outcome of this legal battle. Now that the judgment has come, it could spur investments,” Salil Garg, Director at India Ratings and Research said. He, however, added the order does not automatically translate into super-normal profits for companies as they would continue to cope up with the risks of increased domestic gas prices and consumers switching to alternative fuels.