The Ministry for Petroleum & Natural Gas is working on a new public-private-partnership (PPP) model for laying gas pipelines in the country and correct the lacunas in the existing system.

After the announcement by Finance Minister Arun Jaitley in his Budget speech that the existing gas pipeline infrastructure of 15,000 km will be doubled by using an appropriate PPP model, the Ministry has asked the Petroleum and Natural Gas Regulatory Board to initiate work on it. The Board has already been authorised to call for bids for 9,000 km of pipeline infrastructure. A senior Ministry official said “the Board may opt for a consultant to advice it on working out a PPP mechanism for the national gas grid. The model will also need to clarify on whether there is need for viability gap funding or it should be tariff based.”

Viability gap funding is essentially a subsidy to provide support to infrastructure projects that fall short of financial viability due to their long gestation period and inability to raise tariffs to commercial levels. The other model used for PPPs is tariff-based competitive bidding, under which project developers bid on the basis of a pre-fixed tariff with an option to keep a portion open for cost escalation.

According to players in the gas infrastructure sector, there may be need for a viability gap funding model for certain segments, as a particular area or zone may not have sufficient demand to make the project economically viable for the developer. Under the current bidding system, the lowest bidder – the developer offering lowest tariff – gets the project. This creates a disparity, as a consumer falling in the stretch that has been won on a high tariff may want lower tariff being offered in a stretch in the neighbouring zone.

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