IGL-PNGRB case ruling adds regulatory uncertainty for CGD
ICRA notes that, the recent judgment of the Honourable Delhi High Court in the case between IGL & the Petroleum & Natural Gas Board regarding powers of tariff determination.
June 05, 2012 / 15:34 IST
ICRA has come out with its comments on recent Delhi High Court Ruling in IGL Vs PNGRB case. The research firm notes that, the recent judgment of the Honourable Delhi High Court (HC) in the case between Indraprastha Gas Limited (IGL) and the Petroleum and Natural Gas Board (PNGRB or the Board) regarding powers of tariff determination, while offering immediate relief to the company, has created a fair degree of uncertainty regarding the functioning and regulation of the City Gas Distribution (CGD) sector in the country.
Fundamentally the recent High Court verdict has raised several issues about the role of the PNGRB with respect to tariff determination. The ruling of the HC suggests that as per the provisions of the PNGRB Act as they stand today, the only tariff element which can be regulated is the transportation tariff which is applicable incase of usage of the distribution infrastructure of an entity by another entity i.e a third party marketer operating under an open access regime. In IGL’s case with the company being both transporter and marketer, the said transportation tariff regulation shall not apply with respect to the gas it sells on its own account. It is however not clear from the judgment that with respect to the third party access/common carrier system applicable upon expiry of marketing exclusivity[1], whether the network tariffs as determined by the regulator currently shall be valid or not. Considering that the network tariff is the base for the working of the open access system, lack of clarity on its determination is likely to delay the implementation of the common carrier system in the NCT region as well as other regions where marketing exclusivity will be expiring over the near term.Further the HC has observed that given that the transportation tariff is only one of the components of the overall price[2] charged for sale of PNG/CNG and the other elements of tariff have not been placed within the purview of the PNGRB’s control, it seems that the regulation of the end selling prices charged by a CGD entity to its consumers is not intended to be within the scope of the regulators powers’ as per the current legislation. The judgment also corroborates the recent PNGRB’s stance on determination of marketing margin for gas marketers, wherein the GoI had asked the regulator to determine the marketing margin to be charged by the marketers but the regulator later opined that it did not have the powers under the PNGRB Act to determine the same.Mr K. Ravichandran, Senior Vice President and Co-Head, Corporate Ratings, said "Most of the facets of the recent judgment seem to indicate that the provisions of the PNGRB Act as they stand today, give limited powers to the regulator as far as the tariff regulation function for the CGD sector is concerned. This may prompt a re-examination of the Act itself so as to bring about clarity and determine the nature of powers to be given to the regulator with respect to tariff setting. This is likely to be a time consuming process and the associated uncertainties may have some moderating impact on the investment climate in the CGD sector despite favourable demand potential".Following the HC ruling, the PNGRB may exercise the option to approach the Apex Court against the verdict, which may take quite some time to resolve. Besides entailing uncertainty for the entities involved, these legal tussles underline that there are quite a few areas of dispute between the Board and CGD entities which is a concern from the perspective of the sector. As it is, the anomalies in the bidding criteria, frequent litigations, delays in granting authorization are some of the factors that have impacted the pace of new investments in the CGD business. The recent developments have only added to the regulatory uncertainty of the sector and would remain an event based risk for the industry participants till such time that it is resolved.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
