Singh further says that in order to ensure that pipeline entities do not suffer, PMGRB has come out with a unified tariff for CGD entities as well as GAIL.In the case of GAIL, there are a number of pipelines where capacity utilisation was low and other pipelines where it was more. So the regulator has integrated their network to average it out.
I will begin by just asking what the reason was behind that sharp cut in GSPL (Gujrat State Petronet Ltd) tariff and why were GSPL’s filled assumptions not being considered?
Gajendra Singh: This tariff is a combination of various factors like volume flow, overall pipeline capacity and earnings in the previous years. The last time this tariff was worked out was in 2018. At that time, GSPL submitted that the volume flow will be 23 mmscmd but we considered 26 mmscmd and the tariff was worked out and the levelized tariff was 34. Later on, we have seen that the volume went up and the company did excellently and could reach up to 30 mmscmd.
So, in a previous year, when the tariff was considering 26 mmscmd volume, they could reach up to 30-31 in previous years and so their earning were better in previous years. This time, when this revision took place, they have given a submission that their volume is going to be 26 mmscmd. We are considering that volume as 30 million considering the actual volume of previous years. We do not have any reason not to believe them.
Whenever we work out the tariff, we normally do it for 10 years and then in between, after 5 years, there is a revision. But here we have kept a special provision only for this GSPL HP if the volume declines the way they are projecting, then perhaps after one year, we will review those tariffs. The main reason for decline was that in previous years, they had better earnings. One can see their balance sheet also.
It is a regulated business and this GSPL is doing only this transmission business. It is not like other businesses are there. So, their earning was definitely better in previous years. That has been true when we worked out this tariff, that was one reason.
Secondly, the capacity when they installed the pipeline network, there was a capacity considered 30 million. But in between, a lot many new sources have connected to that pipeline. Whether it is a Mundra, whether it is a Dahej on the now Chhara terminal is also going to get connected. So, taking all those things into accounts, PNGRB has given this job to the expert agency that is Engineers India Limited to carry out the capacity assessment for all the companies. They did this capacity assessment because the number of entry and exit points has increased and that capacity was worked out at 36 million mmscmd. So that was also another factor. If you see overall what they are getting, if there are some surprises, if volume declines as they are saying, then we will review in one year.Volume is one part of it. You said that you are going to be reviewing the tariffs in the next financial year based on the volume performance. But given the sharp cut in tariffs, earnings impact is also expected to be higher. So, will PNGRB consider that while reviewing the tariffs or will only volumes be under consideration to revise the tariffs henceforth?
Gajendra Singh: One is the volume, but when we will revise then we will see other factors also. Because earlier the practice was that any pipeline entity used to keep a capex for a number of pipelines to connect to the consumers and we used to consider all that capex while working out the tariff. But now, all across the country, all the geographical areas have been authorised to CGD (city gas distribution) entity. After authorising those, if the volume is below 50,000, the investment is to be made by the CGD entity, not the pipeline entity. So, whatever links they have created, GSPL from the high pressure network, 65 they have worked out. We have considered all those things. Earlier we were taking it as a provisional, but now it is final. We have taken note of that capex, but in future,if they put in any capex and say that this capacity is to be enhanced, after one year if there is a revision, that factor will also be taken care of.
Since these are listed entities, there are public shareholders also. The message for the public shareholders would be that PNGRB is interfering and trying to curb profits. How would you dismiss that?
Gajendra Singh: Number one, no, we are not interfering in anybody’s business. It is a public consultation process because whenever we do this thing, we call it a public consultation process. Because there are a number of factors that they have submitted. They have their methodology. Suppose they say the volume is going to be 26 mmscmd but is there any reason to believe that it may not be so, we will take care of that and it is done transparently. I know that this is a listed company, it is hard if something goes down that way, but this is the reality.
Is there any proposal to revisit the gas tariff plans or the tariff structure for GAIL also?
Gajendra Singh: Yes, why not? We worked out their capacity. They have submitted their capacity. We did that capacity. I think that has also been uploaded. They have given some capacity, but we found the capacity has increased so that has also been put up onto the website. Public consultation process will be started for GAIL and subsequently we will work out on those things.
What is the number that has been suggested by GAIL and what is it that your assumption has been? Could you spell it out for us?
Gajendra Singh: Right now, nothing has been suggested for GAIL. What I am saying is that through an expert agency, we have assessed what is going to be the capacity. Now, based on this, we will ask GAIL to submit their tariff numbers and then the public consultation process will be there and then we will work it out. It will take a time, normally it takes two-three months’ time. So, it will be worked out based on that.
I would imagine that ultimately the objective here is that a large part of the tariff revision should be passed on to the customers or the end consumers. If companies do not pass it on, would you be taking strict action against that?
Gajendra Singh: Right now, we have now implemented a unified tariff. What the entities are earning is a separate part. Based on that, the unified tariff is applicable to the consumers. In this case also, the tariff is not going to change as far as the unified tariff is considered. We have insulated customers with this kind of thing.
But if the gas prices are revised, then that means customers should also benefit. That should be the spirit, right?
Gajendra Singh: Yes, that is the objective of the unified tariff. It is a national gas grid, if they want to buy a gas from any, from East Coast, West Coast or some other places, they can take that volume to their places and unified tariff is applicable all across the country for all the customers. What I am saying is that earning tools are entities, pipeline entities. Another is what is the realisation of the tariff? It is based on the weighted average basis. So, customers are going to benefit from this.
So, that is one aspect of it. But do not you think that this would also discourage companies to not grow volumes?
Gajendra Singh: If they have better earning in the previous year, normally the tariff is reasonable. They get around 12%. But if the entities get more,, that is we have to see that if it is getting more, what are the regulations in place? Then we have to come into picture that shouldn’t any entity be making some kind of big numbers?
PNGRB is said to be working to bring competition in the regasification space as well. What is your thought process here?
Gajendra Singh: Whatever prices are applicable for consumers, should reflect transparency. Currently we are at the stage of asking the information from the entities. Once the entities give all the information, we do not want to control their regas tariff and other things. We want whatever regas charges are applicable all across the country because there are the numbers of terminals. If each terminal is charging differently, it all adds up and the consumers have to pay. We are seeking information from all those entities. Once we get this thing, then we will pitch in and we will see how it will work.
So, what are the next steps you are taking to bring about competition in the city gas distribution sector as well where both marketing and infrastructure exclusivity have expired?
Gajendra Singh: Exclusivity is a separate thing. We are working on that because there are the few entities which have completed 25 years because PNG connections have been given to different houses. It is not that we can immediately bring in some other agency who are going to put up PNG connections to lakhs of houses. That may not be possible.
Normally we give extension to these entities subject to the fact they meet the service level agreements. Those are the few things which we will discuss whenever the exclusivity period is over.
A lot of CGDs have not fulfilled their commitments on the PNG connections front. Is PNGRB planning any action on them already?
Gajendra Singh: That is also our worry and that is what we are seeing. But, we have to see also that basically the problem is when one is giving a PNG number or PNG connection to any house, they have to replace the LPG connection. Many times consumers do not want to give up LPG connection because they have not experienced the PNG one as they are new consumers. That is why this OMC has come out with a policy, they can keep these LPG cylinders in safe custody. So, whatever the security deposit is there, they can keep this cylinder.
If a person has a transferable job, they can surrender it and take a PNG. But if they are getting transferred to a place where the PNG is not there, they can get their LPG. ,So that is one.
In PNG, we are also worried that those numbers are not being met but we are also seeing that their acceptability from the consumer side also needs to be there. So we are working on that.
So, let me summarise our today’s interaction. The reason why PNGRB has come out with pricing revision is because the companies, because of the volume growth, had made returns, which were more than 12%. Since this is a regulated entity, PNGRB is only ensuring that whatever the fine print was, if they are making returns of more than 12%, that really needs to be capped. So, it is in this spirit perhaps this decision has been done and this was also done after a public debate.
Gajendra Singh: Yes, it is right, correct.
PNGRB is open to revisit the tariff structure if the returns go below 12%.
Gajendra Singh: Basically your point is right. The pipeline entitities should not suffer. So, we have come out with a unified tariff. For GAIL also there are the number of pipelines where the volume, what we call capacity utilisation was low, there are the other pipelines where the capacity utilisation was more, so we have integrated their network so it averaged out. This was in the interest of the entities. Maybe in some places they are losing, but in other places they are making a good earning. We have averaged out that.