PNGRB mulls trading of pipeline capacities on NCDEX, MCX

The PNGRB has hit upon a novel way to not just improve natural gas supplies, but also create a level playing field for the players in the sector. It has proposed that apart from trading in just natural gas, trading in pipeline capacities be also allowed on commodity exchanges like the NCDEX and the MCX.

This, it says, will give players like GAIL to monetise on surplus pipeline capacity give players in need of pipeline to distribute their supplies help create an efficient gas grid with open access to all players and provide a level playing field for all players. The proposal has grabbed analyst interest.

Dharmen Shah, VP - Institutional Eq, Ambit Capital, says that  I think it is positive in the sense that it will open up the sector in the future for third party participants to come into this space which is right now a monopolistic situation.

But some warn that while this will ease some of the sector's infrastructure woes, implementing it will be mean navigating a maze of policy-related issues.

Deepak Mahurkar, director & leader - Oil & Gas, PwC, says that there could a conflict of different policies in India itself. For example for infrastructure status the pipeline capacity is asked to be excess of what is booked already. And therefore there may be a commitment on that capacity on open access and on the other hand we have encouraging trading in pipeline capacities. I think it will be feasible and practical only after a few years.

The PNGRB is also keen on preventing cross subsidization and cross pollination of profits and revenues into unconnected businesses of gas production.

To this end it has proposed that pipeline ownership, gas marketing, gas transportation and gas production be treated as separate activities under separate entities. This will have a three pronged approach. First, unbundling the accounting system so that revenues, costs and profitability in independent businesses will be accounted for separately, creating better transparency for regulators, owners and consumers on the performance of each business aspect.

Second, unbundle the legal aspects of these activities. This will lead to the reaction of different companies, and thus reduce conflict and cross-subsidization.

Third, do not allow any company to enter into more than one business in the value chain. This will reduce a monopoly in the sector, and reduce the risks to the entities involved.

The board says this practise has already been implemented in the US with favourable results and implementing it in India will not only ease the shortage of gas, but also make for a more competitive and profitable sector.