Press Releases
[New Delhi, 19th May, 2006]
Implications of Revised Pipeline Tariffs and Marketing Margin on GAIL
New Delhi, May 19, 2006: The Inter Ministerial Group (IMG) headed by the Finance Minister is understood to have accepted the Tariff Commission’s recommendations on the pipeline transportation tariff of GAIL for the HVJ and the DVPL pipeline systems, and on the marketing margin on the sale of RLNG by GAIL, IOC and BPCL from the Dahej terminal.
The Tariff Commission had inter-alia recommended an integrated transportation tariff for the HVJ and DVPL pipeline systems of GAIL, based on Cost of Service method for calculating the transportation tariff. The Commission had recommended an integrated Base Tariff of Rs. 831/ MSCM for the HVJ+DVPL system. In addition, the Commission had recommended an indexation formula to take into account the variation in fuel cost, inflation, tax rates and the actual volumes of gas transported. The effective tariff, based on the current fuel cost, inflation, tax rates and volumes of gas transported works out to be Rs. 960 -Rs. 970 per MSCM of gas.
Currently, the HVJ and DVPL pipelines have distinct transportation tariffs based on the Discounted Cash Flow method of tariff computation and the current effective weighted average tariff of both the HVJ and DVPL pipelines put together works out to be Rs.950 per MSCM.
Therefore, after the revision of the pipeline tariff based on the Tariff Commission formula, there will be an upside in the pipeline revenue stream of GAIL.
Further, there is additional pipeline revenue that is expected on account of the pipeline tariff of the Agra-Ferozabad system, which is connected to the mainline HVJ system
Keeping in view the importance of supplying clean natural gas to the Taj Trapezium zone, in the period 1997-2004, GAIL made an investment of about Rs. 130 crore in pipeline systems in the Agra-Ferozabad region. As per the decision of MoPNG in the year 2000, the investment made by GAIL on the Bajera-Agra-Ferozabad pipeline system was to be recovered as part of the HVJ tariff, when the tariff was due for review. Nonetheless the current recommendations of the Tariff Commission on the HVJ+DVPL pipeline tariff have not included the component of investments on the Bajera-Agra-Ferozabad pipeline system. In order to address this aspect, the Tariff Commission has submitted a separate report for the consideration of the MoPNG. Once it is accepted, it is expected that this additional recovery would also add to the transmission revenue stream of GAIL.
The Commission has also recommended a revision in the marketing margin on the current sale of 5 MMTPA of RLNG by GAIL, IOC and BPCL from the Dahej LNG terminal. The revised marketing margin would be 5 US cents per mmbtu, as against the current marketing margin of 12 US cents per mmbtu. As a result, a downside in the revenue stream on account of the RLNG marketing margin is expected.
Notwithstanding, we expect that the downside effect would be mitigated in the current fiscal on account of:
- Increase in the sales revenues, expected to accrue on account of increase in the volume of sale of RLNG through imports of spot LNG cargos by GAIL.
- Increase in transmission revenues, expected to accrue on account of higher volume of RLNG transportation by GAIL.