GAIL to look at legal action against PNGRB on tariff model

State-run GAIL India will now have to pay a higher tariff for its 4-pipeline network in KG basin, after the Petroleum and Natural Gas Regulatory Board (PNGRB) fixed single integrated fee structure. This directive will take GAIL's piped gas transportation cost higher by 80.44 percent to 5.56 per million British Thermal Units.

Analysts believe GAIL may litigate the revised tariff as it will impact financials of the company. GAIL's Chairman, BC Tripathi in an interview with CNBC-TV18 said that the order will dent bottomline by around Rs 140-150 crore.  “It is a retrospective order and not a regulatory industry practice. We will look at legal options but first will have a dialogue with PNGRB,” said Tripathi. 

Must Read: Buy GAIL India, says Sudarshan Sukhani A pipeline network of over 834 km in KG basin contributes to 10 percent of the overall revenues to GAIL. In 2011, GAIL had made a presentation to the Board stating that there should be an integrated tariff structure for its four sub networks in the basin based on average volumes, capex and opex which were lower than what the Board has fixed. Read This: GAIL targets bigger presence in global LNG trading Below is the edited transcript of Tripathi’s interview to CNBC-TV18. Q: What would be the impact of the new tariff that is being announced by the Petroleum and Natural Gas Regulatory Board (PNGRB)?
A: The new tariff which has been announced by PNGRB yesterday, represents just 3-4 percent of our volume of gas which we are transporting in KG basin area. On annual basis, it may have an impact of Rs 130-Rs 140 crore in terms of the realisation of revenue from there. However, on an overall basis, at the company level also it will be around 4 percent or so.

Q: It has a retrospective nature to it though this order that has been set out all the way from 2008 – what would the impact of that be and what is GAIL considering now. Are you looking at legal options to take on this note or are you engaged in dialog with the PNGRB?
A: There are a lot of issues as far as the way PNGRB is looking at the transmission tariff and not only for us, it is for the whole sector. This issue of the retrospective implementation of such orders, that is four years-five years backward, is something which is unheard of the industry and is not workable at all.
On such an issue, we know that already the other transmission companies like Gujarat State Petroleum Corporation (GSPC), Reliance and Indraprastha Gas Limited (IGL) are all engaged with PNGRB, the Appellate Authority. The case is already in the Supreme Court. This is the way industry is reacting to it and we will definitely check up with PNGRB first and if we don't get a proper redressal and based on the outcome of the ongoing cases, we will go to the next level of the redressal forum. It could be Appellate, it could be court as far as retrospective date is concerned.
The second issue is the way the other company is calculating tariff in terms of the capacity utilisation. When one talks of infrastructure sector and when one asks somebody to spend money and build the pipeline and so and so infrastructure, it cannot be at the loss in terms. If there is a lower gas production and there is low economic growth, the capacity utilisation is not happening and in that situation the hit cannot be taken by the transportation company.
We will be taking up with the PNGRB to follow the regulations specified by them only. We believe they are not following their own regulations. On all such issues we will be engaging ourselves with PNGRB first of all in a constructive manner.