CorporateLatha Jishnu: Hole in the gas pipeline
Latha Jishnu / New Delhi October 31, 2009, 0:16 IST
Members of the Petroleum and Natural Gas Regulatory Board (PNGRB) describe themselves as the twice-born. The board came into existence on June 25, 2007, but could not function because the government had failed to notify the PNGRB Act which gives the regulatory body its legitimacy. So the board was renotified on October 1 after the government had tidied up its legal housekeeping. But unlike the twice-born Brahmins, the board has found itself cast in the role of untouchables on all crucial regulatory issues.
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In the intervening period, the Ministry of Petroleum and Natural Gas (MoPNG) rushed to allot nine trunk gas pipelines to two entities: Mukesh Ambani’s Reliance Gas Transportation Infrastructure Ltd (RGTIL) and Gail India. While the public sector undertaking got five of the projects, RGTIL got four. None of these pipelines was bid for nor was any expression of interest sought. It is this legacy, and worse, that the regulator has had to deal with while establishing a national gas grid for the country.
Not that the regulator has done much to help. Its stand is that these pipelines had to first seek its approval. But while sitting on its regulatory high horse, the regulator failed to draw up a blueprint for a national grid. And it did not put any new projects out to bid. The result: Huge gaps in the pipelines network map of the country that leave the south and the east unserviced.
With natural gas supplies from the Krishna-Godavari (KG) Basin increasing in volume, the government has been making its displeasure over the missing pipeline network pretty public in recent months. In a move that undercuts the PNGRB, the ministry has decided to set up a parallel authority to fast-track a gas grid for the country. Its motives in setting up the National Gas Highway Development Authority (NGHDA) seem unimpeachable because it cites the need for balanced development.
A draft cabinet prepared by MoPNG says the new authority is necessary in order “to hasten the pace of socio-economic development of remote/underdeveloped regions”. The ministry’s justification for the gas authority, which will primarily be public-funded, is that natural gas is currently supplied only to customers close to production re-gasification centres or adjacent to the existing pipeline network — 66 per cent of the gas consumed in the country goes to Gujarat, which is among the most industrialised states.
This is worsening because most of the Reliance KG Basin gas is also making its way to the west and north through Ambani’s Kakinada-Ahmedabad East West Pipeline. In addition, Gujarat State Petroleum Corporation Ltd (GSPCL) will also be taking its gas discovery in the KG Basin to its home state. The
PNGRB has just approved the proposal of GSPCL’s subsidiary, Gujarat State Petronet’s proposal to run a pipeline from Mallavaram (Kakinada) to connect with Gail’s HBJ pipeline. This is expected to be bid out in the near future — there has been outrage in Andhra Pradesh which feels it is not getting its due share of the gas discovered off its shores.
The country needs a more balanced network but the gas highway authority appears half-baked. To begin with, it will be set up by a resolution or executive order and will be a creature of the ministry unlike the PNGRB which is a statutory authority. There is also no mention in the proposal of bids being called for these pipeline projects which are to be primarily public-funded. The ministry believes that funds can be got through equity participation by the executing agencies and/or through a cess under the Oil Industry (Development) Act with limited budgetary support.
What is most worrying in the draft note is the government’s intention “to bring out suitable modifications in the PNGRB Act” to fast-track these projects. As it is, the board has been functioning under severe handicaps since its key powers, to authorise pipelines and to fix prices of petroleum products, have been withheld from the regulator. Currently, the regulator is fighting a public interest litigation in the Delhi High Court. In a hearing in August, the ministry had no hesitation in telling the court that the board did not have the requisite powers to issue city gas licences!
It is common knowledge that Mansingh and the ministry have been on a collision course almost from the start. The ministry has been sending a series of missives to the regulator and had indicated that it would be seeking changes in the functioning of the board through changes in the law.
Industry analyst and regulatory experts say it is better to challenge arbitrary actions such as the board calling for city gas bids in Ghaziabad where the state-owned Indraprastha Gas Ltd has been operating than to dilute the powers of a statutory regulatory authority which is already crippled by the fact that certain sections of the PNGRB Act have not been notified.
“The gas highway authority is a vague proposal without a viable basis. It is not clearly thought out all,” says petroleum industry analyst T N R Rao, a former MoPNG secretary. “Gas is a vital fuel. What we need here is better, stronger regulation, not less.” Rao says the core of the problem is that healthy principles like unbundling are not mentioned at all, either in the PNGRB Act or in the new proposal.
Another worry is that proposal does not say what kind of entities will be nominated as the executing agencies or how these projects will be given out. One of the problems that PNGRB has been dealing with is the East-West Pipeline which was awarded by the ministry to RGTIL in 2004. The pipeline has come to the board for tariff fixation but the company has not shown on what terms the project was awarded to it since no bids were called for by the ministry. The 1,375-km pipeline comes at a whopping cost of Rs 17,950 crore and the regulator has called in consultants to check the costs for fixing tariffs. The board has complained about the ministry’s unwillingness to provide the documents on the project and officials are maintaining a studied silence on the issue (‘Blockages in the pipeline’, Sept 26). How transparency will improve with the new authority is anyone’s guess. And few are betting that projects can be fast-tracked under such a dispensation.