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To increase the share of gas in th energy basket from 6 per cent to 15 per cent by 2030, the government has been working towards improving access to this fuel through favourable policy support and consistent growth of transmission infrastructure across the country.
As of today, India has gas pipeline network spanning 21,000 km across the country but primarily limited to West and North. A further 14,000 km is expected to be added in a few years, with the work on several sections already underway. Expanding the network will add more buyers and sellers from different parts of country. The network is expected to provide access to CGD companies, refineries, fertiliser plants and industries all over the country.
These pipelines, along with the transporters that operate them, are pivotal for supplying gas across the country. The investments put in by transporters to lay, maintain and grow the gas network is imperative to improve access to consumers, along with determining the capacity of transmission capabilities for this fuel. Hence, it is important to create well-functioning markets to ensure fair and healthy competition and a robust demand expansion based on market dynamics and will to act for cleaner fuel, replacing carbon intensive fuels like diesel, petrol, naphtha, pet coke, coal etc.
Market framework
Expanding network is only half work done, the access to network also needs transparency and neutrality for its non-discriminate use by all gas users. As India operates a multi-ownership gas pipeline transportation system, it is important that a framework be established ensuring rules for access for own use or others are same and there is level playing for all gas system users.
New players intending on purchasing gas in India are faced with a major challenge in the form of connectivity and access. When new entrants approach established players for access to their network, they are cornered into buying gas from them in order to transport the fuel through the pipelines owned by these bundled entities. Despite the presence of other suppliers willing to sell gas at lower prices, consumers are forced to buy gas through bundled entities just for their transportation networks as purchasing from third parties attracts an assortment of overhead costs such as ‘Ship or Pay Charges’ and ‘Imbalance Charges’. These factors lead to the creation of an inefficient, monopolistic, and biased marketplace.
In a healthy and competitive market, the commercial aspects of market participants rely heavily on the operational and investment decisions made by the transporters. Thus, for an efficient and unbiased market to take shape, it is critical for transporters to function in a non-discriminatory manner to build trust amongst the participants. This is why the unbundling of transportation and trade/marketing of gas is essential.
The establishment of an Independent System Operator for the whole national gas grid can ensure non-discriminatory and uniform access to the grid and optimise grid operations across multiple pipelines.
Unbundling of the two components which should have been separate in the first place — commodity and transportation is the foundation stone to build transparency and fairness in the system. This will empower the buyers who will be able to make informed decisions on contracting after making an apples-to-apples comparison across quotes from different suppliers which currently is impossible given bundled nature of contracts offered by the infrastructure holders.
The buyer without any GTA with transporter, he is left with no choice to switch supplier. Also unbundling the two components will be tax efficient for the buyers.
Natural gas has still not been included in GST regime. In absence of common GST across the country, input credit is not available on taxes. Bundled contracts are not only commercially costlier for buyers they also lead to tax inefficiencies as in by bundling both transportation and gas commodity the buyer loses input tax credit on GST applicable on transportation tariff, which is especially significant for those who pay zone three tariffs. (18%*114 = ₹20/MMBtu).
Further, State VAT gets applicable on both the components — transport tariff and gas — a case of double taxation. Therefore, at least the invoicing for both the components needs to be unbundled to start with and natural gas has to be brought under GST.
Delivery of gas to consumers is impossible without pipelines and the transporters that operate them. In India, as per the industry norm, at least 25 per cent of any transporter’s pipeline transmission capacity has to be reserved for common carrier access. The remaining 75 per cent of capacity can be utilised by the transporter for its own transactions, or to fulfil long term contracts.
Due to bundled entities having vested interests in the trade as well as the transport aspects of the gas business, even if this 75 per cent capacity is not utilised completely, other participants are not allowed access to these transmission capabilities. This leads to the underutilisation of precious infrastructure, hampers access, and builds up unnecessary congestion in the network.
Transparency is Critical
By virtue of operating the gas network, transporters have access to vital information such as volumes of gas being transported through the pipelines, along with details of the sellers and purchasers that are using the infrastructure. This information is a boon for market participants as it allows them to plan their procurement efficiently, avoid congestion on the network, and optimise prices.
This information can also be used by regulators for the formation of more effective policies and guidelines that will prove to be conducive to the growth of the country’s gas markets. The data accrued by transporters will also prove to be invaluable to investors and new players looking to enter into the gas sector.
When access to India’s gas networks is made available to all players on a non-discriminatory basis, the gas economy of the country will deepen, and market liquidity will improve drastically. The government has been instrumental in growing the Indian gas market thus far, but there is still work to be done in order to maintain the trajectory of the sector, so as to facilitate the transition of India into a gas-based economy.
Transparency, efficiency, and seamless connectivity of the nation’s gas transmission sector, along with the unbiased functioning of transporters, will play key roles in facilitating the realisation of that vision.
The writer was former CMD of Petronet LNG and former Director, HR, ONGC
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