Date:24/11/2007 URL: http://www.thehindubusinessline.com/2007/11/24/stories/2007112450630200.htm

Back Distributors unhappy with city gas supply draft

‘Confusion over issues on network tariff, return on investment’

Cause for debate
Board can review ‘X per cent’ even before completion of 1-yr period.
While tariff is subject to review after 3 yrs, board also reserves right to review it earlier.
Board prefers to maintain silence till the debate is over.

Pratim Ranjan Bose

Kolkata. Nov. 23 The draft regulations on city gas distribution (CGD) made public by the Petroleum and Natural Gas Regulatory Board (PNGRB) last week seems to have failed to win the confidence of the existing piped natural gas (PNG) and compressed natural gas (CNG) distributors in the country.

While PNGRB has preferred to maintain silence till the debate is over, critics feel that the draft has many grey areas.

Sources in India’s leading CGD companies told Business Line that the confusion was over issues relating to the network tariff and the return on investment, especially when compared with the list of obligations underlined by the Board.

X factor

According to the draft, the return on capital employed by the CGD companies “shall not be higher than the average rate of long term government securities issued by RBI during the 12 months prior to submission of application plus X perentage.”

This X per cent, which is the incentive for attracting huge investments in this sector, will be determined based on the weighted average cost of capital in the project for a period of at least one year.

“However, the board may review this X per cent even before the completion of the one year period.”

Tariff review

While the tariff is subjected to review after three years, the board also reserves the right to review it earlier.

“CGD is more challenging to a business than it appears especially in view of the lack of supply of natural gas and the huge variance of the cost of such supplies. Unless there is a scope of handsome return, investors may shy away from making commitments,” says a senior official with a CGD major.

Network tariff

In the case of CNG, the draft underlines that the network tariff will be applicable only up to supplies made by a CGD operator to a CNG station before compression. Understandably, it leaves scope for competition in setting up such stations by potential franchise operators of a CGD company.

“The proposition may lead to a situation whereby the CNG price payable by the final customer is not regulated,” points out a source.