Introduce the European model for gas tariffs: BPCL

Vol 7, PW 21 (14 Jan 04) Midstream & Downstream

BPCL also raises pertinent questions on the proposed gas transportation tariff.

There is no basis proposed for tariff fixation, writes BPCL. The phrase reasonable rate of return is too vague.

Gas pipelines are a natural monopoly and a transparent basis of tariff fixation should be identified. BPCL wants the oil ministry to formulate a uniform tariff applicable to both existing and new pipelines.

New investments in capacity augmentation or branch lines should be treated as a single pipeline network and tariffs should be worked out for the entire pipeline system. BPCL believes disputes could also arise over the status of GAILs 4,600-km HBJ pipeline.

It may be possible that Indian Oil and BPCLs LNG customers along the HBJ route are priced out by GAILs competitive advantage of having recovered a substantial investment in the old HBJ pipeline. BPCL opposes the draft policys suggestion to charge separate tariffs for distribution pipelines.

There cannot be separate tariffs for distribution pipelines as the distribution companies supplying gas might fix the price for gas inclusive of transportation costs. BPCL insists that an independent regulator should fix the tariff for transmission pipelines.

Once the tariff is fixed, why should this tariff be treated as an upper cap asks BPCL. Unlike the US, Indias gas market is not developed enough to move towards the concept of a market price as there is no network in place as of now and the market has only one player (GAIL India).

BPCL advises the government to consider the British Transco or European model of gas tariff transportation. In Europe and Britain, the transmission companies follow a two-part tariff system.

BPCL wants the transportation tariff to be calculated by the European formula of A + BX where A represents fixed charges for items like the rate of investment, B for variable costs (operating costs) and X represents the calorific value and hydrocarbon content of the gas.