Transmission Fee- GAIL for uniform methodology for all players

March 10, 2005, New Delhi.

BackgroundFrom March 2004, the import of LNG has commenced at Dahej in Gujarat. The LNG is regasified by M/s Petronet LNG Limited (PLL) at Dahej and sold to customers in Gujarat, Madhya Pradesh, Uttar Pradesh and the National Capital Region of Delhi by GAIL (60%), IOC (30%) and BPC (10%). The regasified LNG is delivered to the markets in these states by GAIL by transporting the same through its Dahej-Vijaipur Pipe Line (DVPL) up to Vijaipur and thereafter (beyond Vijaipur) to Delhi through its Hazira - Vijaipur - Jagdishpur (HVJ) Pipeline.

In July 2004, the Inter Ministerial Group (IMG), constituted under the Chairmanship of the Hon'ble Finance Minister, desired that the regasified cost of LNG, the transportation tariff for DVPL and HVJ and the marketing margin on the sale of RLNG needed to be looked into by an independent expert agency, namely, the Tariff Commission.

In August, 2004, the Ministry of Chemicals and Fertilizers requested the Tariff Commission to conduct a study regarding pricing of various components of RLNG. The terms of reference, inter alia, included

1. the methodology of fixing the transportation cost of NG/LNG to various consumers
2. evaluation of regasification charges by PLL
3. reasonableness of other components of the post FOB price of LNG

The Interim Report of the Tariff Commission was submitted in December 2004 and thereafter in February 2005, the Ministry of Petroleum & Natural Gas advised the Tariff Commission to consider all relevant issues pertaining to the tariff calculations made in the Interim Report.

Methodology of Fixing Transportation Tariff.

Methodology of fixing the transportation cost of NG / LNG to various consumers is yet to be suggested by the Tariff Commission.

GAIL would be happy to accept a uniform methodology based on international practices with clearly spelt-out norms on important parameters like Economic Life for capital recovery, Actual Availability and Design Margins for Volume Assumptions, Number of operation days, Inflationary effect on cost of asset replacement and Return on Equity.

Once this is standardized, companies other than GAIL, which are engaged in the business of natural gas transmission in India or likely to be engaged in the gas transmission business in India, would also have to adhere to the norms recommended by the Tariff Commission, so that consumer interest is protected in all the cases.

Transportation of RLNG by the DVPL System

At present, GAIL is charging distance reflective zonal tariffs for the DVPL system which was mandated by the Ministry of Petroleum and Natural Gas. The Interim Report has recommended a single tariff for transportation of R-LNG along the DVPL System, starting at Dahej and ending at Vijaipur.

In this regard, MoP&NG has advised the Tariff Commission to take into account the impacts of actual volume throughputs and inflationary effect on cost of asset replacement, which were not considered in the Interim Report.

GAIL is looking forward to charge the single postalised tariff, as determined by the Tariff Commission and all the customers of R-LNG would be bound by the uniform tariff, as recommended by the Tariff Commission for transporting R-LNG.

Transportation of R-LNG by the HVJ System

At present, all the R-LNG consumers located downstream of Vijaipur are being supplied R-LNG through the HVJ system. These consumers also include five Fertilizer Plants, namely, Chambal Fertilisers, Gadepan, Indo-Gulf Fertilisers, Jagdishpur, Oswal Chemicals & Fertlisers, Shajahanpur, IFFCO, Aonla and Tata Chemicals, Babrala.

It is pertinent to mention that as per the tariffs as mandated by the Ministry of Petroleum and Natural Gas, R-LNG consumers beyond Vijaipur are charged a pittance, viz. Rs. 22 / 1000 SCM, which is not reflective of the more than 1,000 kms of the HVJ pipeline facilities that they are using to transport R-LNG beyond Vijaipur. As per GAIL's estimates, the company is suffering an under-recovery to the tune of Rs. 48 crore annually on accounts of R-LNG consumers who are using the HVJ facilities beyond Vijaipur. GAIL is looking forward to charge the quantum of tariff, as determined by the Tariff Commission, for transmission of R-LNG through the HVJ system downstream of Vijaipur up to New Delhi.

The reference to the Tariff Commission by the IMG did not originally extend to the transmission of APM gas through the HVJ pipeline, which is currently Rs.1,150 per SCM. In case the Tariff Commission is now visiting the Transmission charges for APM gas through the HVJ pipeline system, GAIL will accept any commercially determined tariff based on the methodology and the parameters as per the terms of reference for fixing the transportation cost of NG/LNG to various consumers as laid down by the Tariff Commission.

Conclusion

GAIL is happy with the reference of transportation tariff to the Tariff Commission by the consumer groups like the fertilizers companies. The Tariff Commission in its capacity of the de-facto regulator is expected to recommend a commercially and objectively determined methodology for computation of transportation tariffs for natural gas, including RLNG, which will be binding on all present and future transporters of natural gas in the country to adopt and which will be equally binding on all consumers to accept.