Oil & Gas Sector Check - Progressive Regulations For Pipeline Industry: ICICI Direct

ICICI Direct Report

The Petroleum and Natural Gas Regulatory Board has revised natural gas pipeline tariff regulations. While the expected return ratio remains the same (~12-14% range), tariff determination for pipelines by the regulator have been amended, to reflect more ground realities and support economics of newer pipelines. Few highlights include:

1. capacity utilisation ramp up to occur over a 10-year period instead of five years,

2. volume adjustment would now be possible in case actual volumes are higher than normative volumes,

3. capacity expansion of pipelines from new gas sources would be exempted for tariff calculations for five years

4. lower tax rate of 25.2% would be applied prospectively (and no retrospective taxation),

5. there would now be provision for transmission losses,

6. unified tariffs will now be applicable over three zones versus two earlier,

7. The PNGRB may allow a gradual annual increase in the tariffs,

8. integrated tariffs for inter connected pipelines of a single entity will now be introduced.

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