Reliance, Petronet oppose move to free gas transportation prices

State-owned Gail India Ltd, India's biggest gas transportation firm, has endorsed a proposal from the Petroleum & Natural Gas Regulatory Board (PNGRB) to allow pipeline companies to charge tariffs lower than approved rates; but both Reliance Gas Transportation Ltd and Gujarat State Petronet Ltd (GSPL) have objected to the move. 

The regulator aims to promote competition in gas transportation sector, which is expected to grow fast after Reliance Industries Ltd recently tied-up with global energy major BP to source and market natural gas in India. Normally one would expect transporters to welcome a move allowing them to charge lower prices; the objections of Reliance seem to be mainly around some restrictive clauses in the proposals.

Gail has cautioned that the freedom to offer discounts could be misused by companies having interests in both gas production and transportation. "There should be a specific mechanism to prevent any cross-subsidisation between the transportation tariff and the gas price to consumers," a Gail executive reportedly said. 

Reliance Gas Transportation Ltd (RGTIL), a company privately held by Mukesh Ambani and the promoters of RIL, asked the regulator to "defer" the move till the Indian natural gas market matures, according to an Economic Times report. Neither Gail nor Reliance was prepared to confirm the developments.

RGTIL currently operates the $3.75 billion East-West gas pipeline from Kakinada (Andhra Pradesh) to industrial hubs in Karnataka, Maharashtra and Gujarat.
 
It will also connect major industrial towns in southern India and on the eastern coast up to Haldia (West Bengal) through four other pipelines expected to be commissioned in the next two years. 

The company has said that cross-subsidisation should be permitted if it allows transporters to offer discounts, an official in PNGRB said. "An entity that is forced to give some discount in certain areas to improve capacity utilisation of the pipeline needs to be allowed to recover such under-recovery in other zones or through future tariffs to ensure reasonable return during the economic life (of the pipeline)," the official said, quoting an RGTIL's letter to the board.