On October 6, 2020, the Petroleum and Natural Gas Regulatory Board (PNGRB) had issued draft regulations for the access code for city or local natural gas distribution networks. In response to the draft regulations, the key players and other stakeholders in the sector have given their suggestions, comments and views on the proposed draft amendment.
Adani Gas Limited
Adani Gas Limited (AGL) has suggested that it may be appropriate to usher in the open access regime in city gas distribution (CGD) only upon bringing judicial clarity on the relevant matters of exclusivity regulations, compressed natural gas stations (CNG) stations, etc. Further, since the actions by third party marketers and shippers to ‘cherry pick’ customers would be against the very fabric and essence of the access code, AGL has requested to examine and review the code from this perspective as well. The declaration of CGD network as common/contract carrier, open access regime, transportation rate and capacity determination/webhosting, service level obligations of shipper and CGD entity, shortfall and other charges as applicable, etc., are complex and intertwined subjects. Hence, AGL has recommended that the PNGRB may consider constituting a focused group with representatives from the CGD industry and subject matter experts to examine all operational and commercial aspects, and submit their recommendation to the PNGRB to enable a well thought through formulation of regulations.
GAIL Gas Limited
With regard to clause 4(1), GAIL has recommended to extend the declaration time from 90 days to 180 days. It has suggested deleting the clause 4(3) as CGD entity builds required infrastructure based on techno-commercial consideration. Any additional infrastructure without proper techno-economic consideration may lead to infructuous investment. Further, it has also suggested deleting the clause 7(1) as DPNG business is a capital-intensive segment in a CGD network and margins are very less. With regard to charges, in addition to the charges mentioned in the draft regulation, GAIL has recommended that shipper should be liable to pay an appropriate charge to the authorised entity in line with open access provision for electricity distribution. Also, there should be a non-refundable registration fee per applicant to take care of the administrative and other overhead charges. Meanwhile, GAIL has also suggested extending the marketing exclusivity period from existing 5/8 years to 15 years. Taking into consideration that CGD has inherent distribution losses on account of third-party damages and leakages, GAIL has recommended that the regulation should provide for sharing of such losses between the authorised entity and shipper.
Indian Gas Exchange
With respect to clause 4(2) on capacity declaration, Indian Gas Exchange (IGX) has stated that the current proposal of providing open access of 20 per cent means that the authorised entities who have completed marketing exclusivity period in their respective GAs will continue to have marketing exclusivity up to 80 per cent, which is contrary to open access principle. It has recommended that a limit of 20 per cent is too low for granting open access. Further, the basis of limiting open access to 20 per cent is also not known. Drawing parallel from power sector, open access is linked to volume and not with the percentage of distribution capacity. Hence, IGX has suggested that open access be provided to all consumers with a minimum technically feasible threshold for withdrawal of gas be kept (for example 100 MMBtu/day). IGX has also requested to add an authorised gas exchange to the definition of a ‘shipper’. Meanwhile, it has requested PNGRB to consider the entry and exit point quantity as same.
Torrent Gas has sought clarification on the definition of homogeneous zone stated under clause 2(f). With regard to clause 4(2), the gas company has stated that without assurance of a reasonable level of capacity utilisation of CGD network, it may not be appropriate to ramp-up common carrier capacity to 20 per cent the moment it falls below 10 per cent. It has suggested that PNGRB may mandate the authorised entity to develop such additional capacity only when the network is operating at 100 per cent capacity to avoid infructuous capex. Torrent Gas also recommended that cancellation of exclusivity period just because an authorised entity has not been able to reach all the charge areas is not appropriate and is an infringement of infrastructure exclusivity. Further, the infrastructure exclusivity is provided for a period of 25 years and depending upon the capex plan, the authorised entity may reach to charge areas first by cascades and later by principle as there are vast areas, especially under the ninth and tenth rounds of bidding.
Sabarmati Gas Limited
Sabarmati Gas Limited (SGL) has requested the PNGRB that in case the latter decides any CGD network to be declared as a common carrier, the quantum of capacity in the relevant CGD network to be offered as open access will also be required to be determined on a case to case basis, rather than applying a minimum 20 per cent rule for all CGD networks that are declared as common carriers. SGL has suggested that the provision in the proposed regulation 4(2) to the effect that the open access capacity will be higher of 20 per cent of the network capacity or maximum gas flow in past requires reconsideration since the same can result into effectively the entire capacity in the CGD network being treated as an open access capacity.
Indian Oil-Adani Gas Private Limited
Indian Oil-Adani Gas Private Limited (IOAGL) has sought clarification on the definition of ‘homogeneous zone’ for the clarity of authorised entity and shipper. It has suggested increasing the daily offtake capacity from 50 mmbtu/day in order to safeguard the interest of the authorised entity. IOAGL has also suggested increasing the declaration time from 90 days to 120 or 180 days, based on the lengthy process of capacity determination and approval of PNGRB. Meanwhile, IOAGL has recommended that the 6(1) clause violates the terms and conditions of grant of authorisation awarded to an entity for an authorised GA. If PNGRB cancels authorisation in few charge areas, accordingly, the minimum work programme will be reduced on pro-rata basis if not achieved by the authorised entity within the market exclusivity.
Indraprastha Gas Limited (IGL)
Indraprastha Gas Limited (IGL) has stated that the proposed regulations can come into effect consequent upon the declaration of a CGD network as a common or contract carrier after the period of marketing exclusivity is over. However, the CGD entity cannot be declared as common carrier ipso facto on the expiry of the marketing exclusivity period itself. Prior to declaring an entity as a common or contract carrier, there has to be a proper hearing as per Section 22 Sub Clause 2 of the PNGRB Act, 2006, and after hearing the entity, a declaration may be made to this effect. IGL has further stated that since the validity of Regulation 5 and Regulation 6 of the PNGRB (Exclusivity for City or Local Natural Gas Distribution Network) Regulations, 2008 are sub judice before the High Court of Delhi, the proposed regulations cannot be made effective till the pendency of the case. Meanwhile, IGL has pointed out that the draft regulations seem not taking care of the interest of the entities in the entirety. They encourages ‘cherry picking’ of the customer segments by the shipper and there is a likelihood of an attempt to impair the existing network of the authorised entity.
H-Energy has stated 20 per cent common carrier capacity will not serve the purpose and is not sufficient for opening the market to encourage gas on gas competition. Further, this will also not offer a market-determined price to all customers on the CGD network. Hence, H-Energy has suggested atleast 50 per cent common carrier capacity, which can be gradually increased upto 100 per cent within the specified period. Further, H-Energy is of the view that PNGRB should allow the interested shipper to set up compressed natural gas (CNG) station through liquefied natural gas facility and make provision to provide an equivalent volume of gas at possible location under the Ministry of Petroleum and Natural Gas’s domestic gas allocation policy. This way of setting CNG station in CGD authorised GAs was proposed by PNGRB (Guiding Principles for Declaring City or Local Natural Gas Distribution Networks as Common Carrier or Contract Carrier) Regulations, 2019, via public notice no. PNGRB/AUTH/7-MIS (3)/2015, dated August 22, 2019.
Maharashtra Natural Gas Limited
Maharashtra Natural Gas Limited (MNGL) has stated that the sum of the requested entry points maximum daily quantity (MDQ) has been proposed not be less than 500 mmbtu, which is around 25 per cent higher than the existing regulation. In addition, the clause 5(3) stating off take at any exit point not be less than 50 mmbtu per day is also very much higher than the existing regulation. Hence, MNGL has proposed to keep the MDQs as per the existing regulation. Meanwhile, it has sought clarity on the aspect of effect of total gas purchase in the network and gas transportation contract and cost bearing thereof in case of discrepancy.
Gujarat Gas Limited
Gujarat Gas Limited (GGL) has suggested that there should be only one period defined i.e. for laying infrastructure as well as marketing of natural gas, which should be for the entire economic life of the project/authorization, i.e. for 25 years. It has stated that as per the scheme of the PNGRB Act, 2006, CNG is an integral part of the CGD networks. In addition, as per Section 22 of the PNGRB Act, 2006, the transportation tariff has to be fixed for the city or local natural gas distribution network. Therefore, there is no basis for a separate transportation rate determination process for CNG. Hence, there will be only one ‘transportation rate for CGD network’. GGL has also proposed that in case the authorised the CGD entity has reached all the charge areas as stipulated in the grant of authorisation issued by the PNGRB, then in such case if the shipper requests to lay additional infrastructure, the authorised entity should be given first right of refusal to either build incremental network or meet gas requirement of the shipper in any manner i.e. cascade or truck mode. Further, in such cases, the CGD entity’s exclusivity whether in whole or part thereof, should not be cancelled. Meanwhile, GGL has recommended that the regulation needs to be framed in such a way which discourages cherry picking of customer segments.