The Hindu Business Line : Gail pipeline tariff to be reviewed

THE government has ordered a review of the tariff charged by Gail (India) Ltd to transport natural gas through its Hazira-Bijaipur-Jagdishpur (HBJ) and Dahej-Vijaipur (DVPL) pipelines. The Tariff Commission will conduct the review and a timeframe of one month has been fixed for this purpose.

Gas transportation constitutes around 70 per cent of the company's revenues and 50 per cent of its gross margins. During 2003-04, the company recorded revenues of Rs 12,449 crore and a gross margin of Rs 2,623 crore.

The government's move has been triggered by the consumer industries' petitions to bring down the tariff.

"The HBJ pipeline project allowed for a 12 per cent internal rate of return. This does not make sense in today's scenario, where the cost of capital is around 7 per cent and Gail's newer projects are financed at 8-9 per cent," a senior official said.

The case for a review has been accentuated by the recent offer by Reliance Industies Ltd to transport gas from its gas blocks in the Krishna-Godavari Basin to the National Thermal Power Corporation's (NTPC) proposed plants at Kawas and Gandhar in Gujarat over a distance of 1,400 km.

While RIL has offered a tariff of 48 cents per million British thermal units (mmbtu) for a distance of 1,400 km, Gail charges around 73 cents per mmbtu for transportation of gas along the HBJ pipeline, which is not just of a comparable magnitude but also significantly depreciated over time.

Reliance's keenness to set up the pipeline is being contested by Gail, which has been strongly canvassing for maintaining a monopoly status for gas pipeline highways (grid).

The government is currently in the process of finalising a gas pipeline policy, which will decide the fate of ownership of future pipelines. In fact, the draft policy on this matter recently underwent a complete reversal. The Petroleum Ministry is now understood to be favourably inclined to opening the doors for private participation in the cross-country inter-state pipeline business.

Interestingly, the government has decided to go ahead with the review even as it is in the process of introducing a regulatory bill for the petroleum and gas sector in Parliament.