Playing to new rules in the gas transmission business

Vol 10, PW 20 (08 Feb 07) People & Policy

Companies who want to enter India’s emerging gas transmission business will have to play by a set of rules and regulations now being drawn up by the newly set up Petroleum and Natural Gas Regulatory Board.

PETROWATCH learns a set of draft regulations is circulating in the oil ministry ahead of approval by the yet-to-be-appointed chairman of the regulatory board. One qualifying criteria is that any future pipeline company must be technically competent to lay, operate and maintain a transmission pipeline or must have a technical assistance agreement with a company experienced in this line of business.

More, these companies will be measured against the regulator’s benchmarks for capital cost, operating cost, volume build up rate and tariff. When any company shows interest in laying and operating a pipeline, the regulatory board will advertise this in three national newspapers to invite Expressions of Interest in the capacity of the pipeline.

If more than one company or group of companies wants to lay a particular pipeline, selection will be based on scores obtained out of 100 marks divided equally between volumes of gas to be transported and the tariff. High volumes and low tariffs will win maximum marks.

To be eligible a company and its promoters should have a combined net worth of at least Rs400cr and be registered under the Companies Act, 1956. Only those who can secure the fastest financial closure, ensure timely completion and prove their gas source will be considered.

Pipeline tariffs set by the regulatory board will be based on discounted cash flow over the 25-year life of the pipeline. Tariffs will be split into capacity charge (fixed cost) and commodity charge (variable cost) and reviewed once in three years.

Any changes will be prospective and not retrospective.