This move is basically undertaken to create competition and provide more options to consumer
There is a possibility, however, that the final regulations might be different and also that it could be challenged by the existing players.
The Petroleum and Natural Gas Regulatory Board of India (PNGRB) has floated a concept paper for determination of transportation rates for the city gas distribution (CGD) network and for compressed natural gas (CNG).
The concept paper is related to network tariffs a third-party new entrant would pay for using the network and CNG network for incumbent CGD where marketing exclusivity has ended.
CGD has infrastructure exclusivity for 20 years, with further extensions permissible in blocks of 10 years, rendering it is nearly impossible for a new entrant to set up its own infrastructure to retail gas, esp. in geographical areas with well-run CGDs.
The PNGRB has invited comments from stakeholders within three weeks and proposes to hold an open house discussion in a month’s time.
PNGRB has made the following recommendations for determination of tariffs:
* Recommending an internal rate of return of 14%
* Auction pricing
(a) Bidding through 3 parameters i.e. tariffs, volumes and time period for capacity requirement
(b) Based on regular reserve price of Rs30/mmbtu and Rs2/kg for transportation rate for CGD
This move is basically undertaken to create competition and provide more options to consumers. There is a possibility, however, that the final regulations might be different and also that it could be challenged by the existing players.
The Supreme Court in a 2015 judgement in the IGL-PNGRB case ruled that The PNGRB Act does not empower the regulator to fix tariffs for CGD networks.
In fact, the regulator, too, has in the concept paper acknowledged that the regulatory framework needs to be revisited given the SC’s past ruling.
Additionally, cases pertaining to the end of marketing exclusivity of some of the CGDs and declaration of their networks as a common carrier with open access, which would be a prerequisite for a third-party to be granted network access, are also still ongoing in the courts and could hence be another legal hurdle.
Analysts said the move is unlikely to impact distributors. Morgan Stanley said that this move might impact the tariffs by 17 percent if the first recommendation is adopted. However, if there is a volume growth of 10 percent for these companies, earnings will not be impacted.
Citi said the concept paper does not come as a surprise and this could be business as usual for CGDs. JM Financial is of the view that there will unlikely be any impact on CGD companies.
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