Oil and gas regulator talks to states on lowering cost of laying pipelines

India has set an ambitious target of increasing gas share to 15 percent of the nation’s total energy mix by 2030 from current 6.2 percent.

The Petroleum and Natural Gas Regulatory Body (PNGRB) is in talks with state governments to streamline laying gas pipelines in an attempt to reduce costs, member Gajendra Singh told Moneycontrol.

Singh said building infrastructure for gas should not be considered only a source of income for state governments, it is also an opportunity for creating a facility for people. The cost of laying pipelines is as high as Rs 60,000 per metre in some states, while it may be as low as Rs 2,000 per metre in some other states.

“We are saying costs such as road cutting charges and laying of pipeline charges should be standardised. We are creating a facility and therefore minimum amount should be charged for gas pipelines,” said Singh.

City gas distribution (CGD) companies often emphasise the struggle of laying gas pipelines in certain areas due to delay in getting required permissions and higher costs on account of lower density of consumers in the area.

Also read: Indraprastha Gas extends losses after distributor cuts CNG price

Singh pointed out that to increase consumption of natural gas across country the PNGRB is also pushing the state governments to cut value added tax (VAT) levied on natural gas.

“Several people from Uttar Pradesh and Haryana come to Delhi for CNG. We are also talking to states for cutting VAT on gas. We understand that states also need to collect taxes but a reasonable VAT of maybe around 5 percent should be implemented,” he said.

Higher VAT is a hindrance in promoting adoption of gas across the country, Singh added. While Delhi has exempted VAT on compressed natural gas (CNG), some states levy VAT as high as 24.5 percent on natural gas.

To increase the share of natural gas in the country’s energy basket, the government has rolled out several gas reforms, including capping APM gas prices—as recommended by Kirit Parikh committee.  India has set an ambitious target of increasing gas share to 15 percent of the nation’s total energy mix by 2030 from current 6.2 percent.

CGDs booking extra profits

Singh told Moneycontrol that the government is working to ensure that CGD companies pass on the benefits of gas reforms to end consumers. He said the government is concerned about consumers not benefitting from government measures, while CGD companies book higher profit margins.

Petroleum and Natural Gas Minister Hardeep Singh Puri on March 4 told reporters at an event that end-consumers in the country have failed to fully benefit from the government’s gas reforms as CGDs are continuing to enjoy high profits. He added that the government is willing to consider taking drastic steps to ensure consumers’ benefit.

Also read: MGL cuts CNG prices by Rs 2.5 per kg to Rs 73.50

Private participation in latest CGD bidding round

In the 12th CGD bidding round which was concluded on March 5, the PNGRB official explained that the state-run oil companies took a lead instead of private players because of the former’s existing presence in the states.

Under the 12th CGD bidding round eight Geographical Areas (GAs) were offered across six Northeast states - Arunachal Pradesh, Meghalaya, Manipur, Nagaland, Sikkim and Mizoram - and two Union Territories of Jammu & Kashmir and Ladakh. Subsequent to the round, the government has authorised development of CGD networks in the entire country, except for Andaman & Nicobar and Lakshadweep.

Singh said the areas offered in the 12th round have certain security and landscape concerns and therefore the companies which are already operating in the area were awarded the respective GA.

The government awarded the consortium of Bharat Petroleum Corporation Limited (BPCL) and Oil India Limited (OIL) licence for Arunachal Pradesh. Meanwhile, Tripura Natural Gas Company Limited, which is promoted by State-run GAIL (India), got licence for Manipur and Mizoram. Hindustan Petroleum Corporation Ltd (HPCL) in collaboration with OIL received the licence for Nagaland while BPCL won the licence for Jammu and Kashmir and Ladakh.