Let logic prevail

Natural gas is a relatively nascent industry, and there are many issues which need to be speedily resolved for this industry to grow and prosper.

In its judgement on the Ambani dispute, the Supreme Court has said that the government must come out with a comprehensive policy on natural gas.

Companies that discover oil enjoy a tax holiday but the same is not true for gas. When companies drill, they find find either oil or gas or both. It seems unfair that those who discover oil get a tax benefit and those who discover gas do not.

After its initial enthusiasm, the government lost interest in the Iran-Pakistan-India gas pipeline but kept it alive through intermittent meetings. The Turkmenistan-Afghanistan-Pakistan-India gas pipeline is now being discussed and has the support of both the US and the Asian Development Bank. The government must now not dither but boldly confront and take a stand on issues of security, transit and transportation costs and landed costs considering that India will be at the tail-end of the pipeline.

The allocation policy of gas from the K-G basin, as formulated by the empowered group of ministers, leaves it open to interpretation. For example, within a sub-sector, if there are competing requirements, who gets the priority? For a project to be bankable, gas supply needs to be assured. In some cases, the argument has been turned on its head: first build the project, and then we will see if gas can be allocated. This is illogical. The system needs to be made more transparent and encouraging downstream investment.

There is a view that for a gas market to develop and price discovery to take place, a national gas grid with trading hubs has to be developed. But for a commercial entity to put up a gas pipeline (leave alone a national grid) there has to be an assurance of supply, consumption and a reasonable pipeline tariff. It would seem more logical for individual pipelines to develop over time to be eventually linked to organically form a grid instead of building a gas grid in anticipation of supply.

The role of regulator too needs to be looked into. The Petroleum and Natural Gas Regulatory Board Act gives the board limited powers, and even these have caused a turf war between the government and the board, leading to delays. While, the PNGRB Act was notified on October 1, 2007, section 16 was not notified. The section authorises the regulator to approve laying, building, operating or expanding a city or local natural gas distribution network.

Though the board had issued licences in six cities, it could not proceed with the bids for seven other cities following a restraint order by the Delhi High Court. The Union law ministry subsequently cleared a petroleum ministry proposal to notify section 16. Apart from preventing such long delays, there is a need to give more teeth to the regulator if it is to function effectively.

Meanwhile, in a positive development, the PNGRB has announced revised zone-wise tariffs for the main HBJ transmission pipeline and the newly constructed East West gas pipeline.

Tags: The Petroleum and Natural Gas Regulatory Board Act, Iran-Pakistan-India Gas, industry, gas