On September 23, 2020, the Petroleum and Natural Gas Regulatory Board (PNGRB) had issued draft regulations for the determination of transportation rate for city gas distribution (CGD) and compressed natural gas (CNG). 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.

Natural Gas Society Noida

The Natural Gas Society has proposed that operating cost should also include the cost of gas loss on the Account of LUAG. The PNGRB may fix LUAG as a normative percentage of the total natural gas volume handled by the entity (best on the past LUAG data of industries), as suggested by the society.

CMA Neeraj D. Joshi, Central Council Member, The Institute of Cost Accountants of India

CMA Neeraj D. Joshi points out that the draft regulations recognise only Chartered Accountants as statutory auditors and authorise only the Chartered Accountants to certificate the various financial and cost statements under CGD and CNG transportation rate regulations. It suggests that the Cost Accountants and Cost Auditors should be recognised to carry out the certification as these members of The Institute of Cost Accountants of India are also involved in the process of cost audit as specified under The Companies Act, 2013, Section 144.

Dhananjay V. Joshi and Associates

Dhananjay V. Joshi and Associates has suggested that the PNGRB should specify the industrial norms or standards, so that the certifying authority can understand whether the actual capital employed and operating expenses are in line with normative level as the words reasonable and justified are only qualitative in nature. Besides, it has suggested that the actual historical cost of acquisition should be considered in the computation of gross fixed assets. These assets will be equal to their actual historical cost of acquisition or that normatively assessed by the Board, whichever is lower. Therefore, the assessment by the board in the same will bring in subjectivity.

GAIL (India) Limited

In the context of Clause 4(1) of draft regulation, GAIL has submitted that since the last date of submission of cost audit return is September 30, the latest date of determination of transportation rate for CGD and CNG should be revised to latest by October 31 and shall be applicable from November 1 till October 31 of the next year. Further, it states that the web hosting interactive spreadsheet calculation model including formulae may be spared with as same shall have lot of back up data. The data as per the provided formats shall be web hosted. However, complete calculation along with back up may be shared with PNGRB as and when desired. In reference to Clause 1 of Schedule, GAIL has submitted that preparing separate financial and cost statement of each geographical area and getting the same audited is a very difficult proposition as these statements are made at company level. However, statements can be made based on company level data by allocating the various head of trial and same can be verified by the auditors.

H-Energy

H-Energy has supported the PNGRB’s proposal for including the cost of service methodology for determination of transportation rates in the draft regulations. It comments that the proposed regulation will not only help the authorised entity to get guaranteed returns for the services, which is conducive for making further investments but also protect the interest of consumers while bringing competition amongst the entities.

IIFL Securities

The IIFL Securities suggests that rather than enforcing a regulated rate of return, the market should be allowed to discover a premium over and above the base tariff, as prescribed by the PNGRB. This will meet the objectives of the overall stakeholders i.e. consumers, incumbent players and new entrants. Further, the PNGRB may also consider increasing the base returns, from 12 per cent post-tax return on capital employed to greater than 16 per cent to ensure that the attractiveness of the business remains intact. It further suggests that price alone should not be the sole driver of introducing competition and ought to include two other factors, quality and reliability of services. The market-discovered tariff will offer fair risk-reward for the incumbents, thereby allowing network access in spirit, rather than blocking access on several technical grounds. Such market discovered tariff will allow the new entrants to base their business plans on quality of services and reliability rather than pricing alone. According to the IIFL Securities, the consumers may take time to establish confidence on quality and reliability of a new entrant which may be able to offer efficient pricing. To that extent, only price should not be the sole driver of consumer migration and a calibrated move towards migration of the consumer should be allowed, albeit not from Day 1. It believes that such a move may allow an authorised entity to raise the bar on the quality of service and reliability, in addition to pricing. It has also proposed that online portals to conduct the bidding on the lines of MSTCE’s Deep Portal (https://www.mstcecommerce.com/auctionhome/ppa/index.jsp) or through platforms such as IGEX.

Indian Oil Corporation Limited

According to the Indian Oil Corporation Limited (IOCL), there is a needs to clarify that all the financial data submitted by the entity in support of their tariff determination would be examined for reasonableness by PNGRB in sub-Regulation 4(4), wherein the primary onus of examining and assessing the data uploaded by the entity seems to rest with all other entities and PNGRB’s role is only to examine any complaint filed to the Board by entities on the data submitted by the entity. Further, the Sub-Regulation 4(5) states that financial adjustments on account of change in transportation rates for CGD or CNG shall be carried out for the year subsequent to Board’s order. In this context, IOCL has submitted that there should be better clarity on how this will be implemented may be given as recovering dues from retail CNG customers in the CGD would not be possible. Finally, IOCL has asked for guidance on computation of the normative cost of acquisition of assets and operating cost from PNGRB.