Unified tariff to raise input cost 5-6% but no huge impact on consumer: IGL

Hike in retail price will be marginal as transportation tariff for national pipelines makes up only an eighth of the final consumer price

The Petroleum and Natural Gas Regulatory Board's (PNGRB) decision to go for a 'unified' tariff structure for pipelines is expected to increase input cost of Indraprastha Gas Ltd (IGL) by about 5-6 per cent. 

IGL managing director A K Jana has said the impact of unified tariff will be minimal and part of it will be passed on to consumers. The hike in retail price will, however, be marginal as the transportation tariff for national pipelines constitutes only one-eighth of the final consumer price.

"In a few geographical areas, we will be having some impact, but that will be a very negligible amount. Definitely, it will lead to an increase in prices as input costs will be increasing, because our GAs are not in zone 1. The rise in input cost will be around 5-6 per cent,"  Jana told Business Standard. At present, the tariff is charged based on the distance covered through the pipeline, longer the distance, higher the charges. However, with the new regulation, there will be two zones -- zone 1 that is within 300-kilometre and another zone is beyond that range. The tariff for the second and third zones will be 100 per cent, while the tariff of zone 1 will be 40 per cent of that of the other zones. 

The unified tariff structure is part of the government's strategy to have a single gas market and to increase the share of natural gas to 15 per cent of the energy basket from the current 6 per cent. Based on reports, the new tariff structure will lead to 20-30 per cent rise in transportation charges at source, while will lead to a reduction of charges at the hinterland. "Whomsoever, is having geographical areas in zone 1 is going to be benefited and those who are out of it and coming under zone 2 and zone 3 are going to face problems," said an industry person.  

The roll-out of open market access in the sector has also come out with some protection for the existing players. On November 26, the PNGRB has released a final regulation for providing access to the third-party shippers on city gas distribution networks. "The regulations have kept most aspects of the access code unchanged, except clarifying further on CNG stations run by OMCs or their dealers/franchises. The PNGRB has clarified the existing CNG stations of franchise/dealers (including OMC’s CNG/LCNG stations) will not be considered as third-party shippers for the purpose of allowing access," said Ankit Patel, vice-president and co-head, corporate ratings, ICRA.  

While any additional capacity expansion at existing stations will also not be considered as third-party, setting up of CNG compressor at a new liquid fuel pump will be considered as third-party. Major CGD players – Indraprastha Gas and Mahanagar Gas have more than 50 per cent of their CNG stations on OMC networks; thus, this regulation significantly lessens the risk of third-party competition and margin contraction for them. 

The risk of third-party marketing would continue to remain for large industrial PNG markets catered to by players like Gujarat Gas in Gujarat given the price-sensitive and large market as well the access to multiple gas sources in the vicinity. Nonetheless, the impact would be limited as only a maximum of 20 percent of the capacity can shift to third-party in a worst-case scenario," he added.