Financial Daily from THE HINDU group of publications
Sunday, Jun 04, 2006
Financial Daily from THE HINDU group of publications Sunday, Jun 04, 2006 |
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Outlook Industry & Economy - Petroleum GAIL favours cost of service method for computing tariff Richa Mishra
The principle of uniformity in levying tariff on consumers across various networks should ensure that savings and additional costs incurred are evened out
New Delhi , June 3 GAIL (India) Ltd, which often finds itself at a receiving end for gas transportation fee charged by it, has said that the most appropriate and transparent method of computing tariffs was cost of service (COS) methodology. Under the COS method, investment recovery is spread across the asset life at an equitable rate incorporating the provision for operating and maintenance cost as well as a suitable rate of return for calculating pipeline tariff. According to a senior GAIL executive, in today's scenario, one of the crucial aspects which arise is the computation of tariff and the method of its recovery, i.e., whether the cost of expansion is to be recovered from the existing or the new customer, or whether to be equally distributed amongthe two.
DCF method
The existing discounted cash flow (DCF) method of charging tariff does not adequately address the flexibility of reviewing tariffs in an expanding network, he added. When asked about the issue pertaining to the past recovery made by GAIL raised in the Tariff Commission report which had gone into transportation charges levied by GAIL, the executive said, this has not only put a question mark on the sanctity of a commercial contract mutually agreed between the consumer and the transporter but also emphasises the need to evolve a mechanism to take care of the taxes and the dividend paid by the company to the Government and its other shareholders.
Principle of uniformity
The principle or the yardstick of uniformity should be the same for consumers across all networks rather than for a few networks for select consumers, the executive said. The principle of uniformity in levying tariff on consumers across various networks should ensure that savings and additional costs incurred are evened out, instead of reducing tariffs for selected customers, he said.
Tariff Panel proposals
Recently, the Tariff Commission, which was asked by the Ministry for Petroleum and Natural Gas to examine the issue of transportation charges levied by GAIL for the supply of gas from the Krishna-Godavari Basin to the independent power plants, has submitted its recommendations based on the COS methodology rather than on the DCF methodology. These recommendations also follow the principles of considering capacity utilisation, working capital requirement, and asset replacement while computing the tariff. Meanwhile, an Inter Ministerial Group (IMG) headed by the Finance Minister, Mr P. Chidambaram, has accepted the Tariff Commission's recommendations for an integrated transportation tariff for the Hazira-Vijaipur-Jagdishpur and Dahej-Vijaipur Pipe Line routes of GAIL.
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