HC verdict on IGL to boost gas distribution cos: RS Pandey

After the Delhi High Court ruled in favour of Indraprastha Gas Limited (IGL) on Friday, stating that the Petroleum and Natural Gas Regulatory Board (PNGRB) does not have the right to fix gas prices, it provided a big relief for gas distribution company IGL. After the development, IGL as well as other gas companies were the biggest gainers in the market.

In an interview with CNBC-TV18, RS Pandey, Former Oil Secretary said that the high court ruling has offered a significant relief for not only IGL, but also other city gas distribution (CGD) companies. According to him, the judgement has brought about a positive atmosphere.
Looking at the increased customer base of CNG and PNG in India, Pandey believes, gradually switching to a gas based economy is imperative. He also emphasized on the importance of widening the network of gas distribution agencies, to cover at least 600 places across the country. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying videos. Q: Did you see it as a fair assessment of the situation with the Delhi High Court quashing the PNGRB order and would you expect it to be contested again or do you think this will be the final word on the issue?
A: I can't speculate whether it will be contested again, but Delhi High Court order has really brought about a big relief not only to IGL but companies like IGL which are intending to invest in this sector. If you look at IGL, its annual profits are to the extent of Rs 200-300 crore. This year, it was about Rs 300 crore.
If any order gives it a hit of about Rs 1,500 crore, what will happen to the health of such a company? It's a big relief for IGL and IGL is a company which has done commendable service. If you look at the CNG sector in Delhi, out of about 40 lakh vehicles, 5 lakh vehicles are on CNG. About 3.5 lakh consumers are on PNG. There are about 200 industrial and big consumers in Delhi.
As far as gas is concerned, it's available more than oil globally. It's cheaper than oil. It’s cleaner than oil and therefore, it is imperative that we gradually switch over to a gas based economy and in this regard the judgement of the high court is a big relief for the whole sector. The intention of the government was also not to regulate every aspect of gas pricing.
Consumer was to be protected through fostering competition, through preventive, restrictive trade practices and bringing about a market mechanism, whereby fuel is available at competitive rates. If you look at Delhi, where IGL is giving its service, CNG is about 20% cheaper than diesel. It is about 60% cheaper than petrol and that’s a big relief.
On the whole, the judgement has brought about a positive atmosphere. Let us see what happens in future whether there is an appeal and if so, what is the final verdict. Q: What about the future marketing margins issue? Do you think that the government might go ahead and regulate marketing margins on domestic gas? What is your view on that front?
A: I can’t speculate what is going to happen. But, we have to promote gas based economy and at the same time protect the consumer. An excellent thing has happened in the recent past when the Minister of Petroleum signed an agreement about bringing gas from Turkmenistan.
Availability of gas has to be ensured either in gaseous or liquid form. After that, consumer network has to be widened. Only in about 50 cities we have these gas distribution agencies. We have to cover about 600 such places in the country. The big task ahead for the sake of the economy, for the sake of the consumers is to promote a gas based economy. Q: The premise of the argument that was eventually accepted by the Delhi High Court was that PNGRB has overstepped its jurisdiction and does not really have the power to determine network tariffs. If PNGRB goes ahead and approaches the Supreme Court, how do you think it’s going to defend its case?
A: There is a Section 22 in the act. The interpretation of that section holds the key. One has not looked at the detailed judgement of the Delhi High Court. At least, I have not got any access to that. Only the operative portion is available.
The basic point is, there has never been an intention to control the retail prices as such. Yes, the transportation tariff has to be regulated and has to be monitored. But, the retail price as such depends on many other factors including the compression charges and the network tariff.
What the Delhi High Court essentially has said is that the PNGRB does not have the powers under the act to control or regulate the network tariff and the compression tariff. So that is where the matter stands. Q: Though there will be bigger and more important decisions that will be taken within the entire gamut of gas and gas pricing, would you say this should lead as a definitive code of conduct when the government sits down to formulate those policies as this is leaning towards wanting to take retrospective action in most of these cases?
A: I think much depends on the way Delhi High Court has interpreted Section 22. You have to wait for that. You have to also wait for PNGRB's decision, whether they go in for an appeal or not and if they do appeal, on what grounds and whether it is upheld or not has to be seen.
As far as the government's rule is concerned, government is always conscious about protecting the consumer. The government is always conscious of the fact that more and more gas has to be accessed either domestically or from abroad. Policy is also an evolving thing and precisely in what manner it will evolve, you can't say at the moment. Q: How do you reckon the entire oil pricing situation itself will be addressed in the course of the next few months? There was a move on petrol, now there is relief on crude, so those prices have been cut down. Would you say it's unlikely, given the current environment on crude that the government would want to move with any alacrity either in terms of diesel or any of the other subsidized articles?
A: You have to protect both, the oil marketing companies as well as the consumers. As far as petrol is concerned, the prices were raised by about Rs 7.50, in line with the market prices. The prices again have come down by about Rs 2, in line with the market trend because crude has declined.
As far as petrol is concerned, it seems to be now moving as per the market determined rates. As far as diesel, kerosene and LPG is concerned, the government does control it and the present environment is such that inflation is still high. The consumers don't want any increase. Hence, the government is not taking a call.
If you look at the market, there is need for increasing it, but whether the government will increase it now or not remains to be seen. But taxation reform is something which is urgent. In particular, the state governments have to bring down not only the tax rates but also convert these ad valorem taxes on basis to per liter basis, the way central government has done a few years back in 2008, in case of excise.
I think now it's time for the VAT rates to be aligned to per liter basis. Instead of collecting excise and reimbursing the oil marketing companies by way of compensating for the under-recovery, it is better for the central government to cut the tax rate. If the tax rate goes down by Rs 1 per liter, the relief to the consumer is Rs 1.20, if VAT rate is 20%. I think taxes and reform is an area which ought to be revisited by the state as well as central government. Q: Should you give up hopes on any kind of diesel price hike anytime soon, because not only did the Oil Minister say that they will not be moving on these prices but there is also no date for an EGoM. In your mind, will this be put on the backburner for now?
A: It looks like although, there is justification from the perspective of the oil marketing companies and the market as such, there is too much of a gap between diesel and petrol. There is justification for increasing. But if you look at the burden on the consumer, if you look at its inflationary impact then perhaps, government may like to wait for sometime and see what is to be done.
The government has to decide whether they want to adjust the tax rates or compensate the oil marketing companies by way of subsidy. I think these are questions which at present are very difficult to touch. Also read: PNGRB move to decide future of IGL stock: IIFL