Shell, BP for splitting GAIL's gas transmission, marketing business

Amid talk of splitting state-owned gas utility GAIL India Ltd, global energy majors Royal Dutch Shell and BP plc have sought separation of natural gas marketing and transportation business before moving to a unified tariff for pipelines.

At an Open House called by the sector regulator Petroleum and Natural Gas Regulatory Board (PNGRB) on July 17 to discuss 'unified or pooling' method for computing gas transmission tariffs instead of current postal or distance based transportation rates, GAIL was pitched against formidable combination of Shell and BP on the issue of unbundling.

While Shell sought "legal unbundling of gas trading and transmission business, so that benefit goes to all shippers, BP felt unified tariff "should be done after unbundling of transmission and marketing functions of an entity," according to minutes of the meeting made available by PNGRB.

GAIL, on the other hand, said: "Unbundling is not related to the unification of tariff. Unification of tariff is a separate exercise and should be implemented on a standalone basis."

The petroleum ministry is looking at splitting GAIL into two firms to resolve the conflict of interest in it being both the transporter and marketer of natural gas.

GAIL had proposed 'unified or pooling' method for calculating pipeline tariff instead of having postal tariffs where customers near the source of the gas pay less and the furthermost pays most. The pooled tariff is to be computed by pooling capital expenditure and operating expenses of all cross-country pipelines of a company and apportioning them over the cumulative volumes in such a way that allows 12 per cent post-tax return. 

Shell Energy Marketing & Trading India Pvt Ltd, at the Open House, said it supported the idea of the unified tariff as it will enable development of the market and consequently lead to matured market.

It suggested that if it was not possible to include all pipelines at the initial stage, then all future pipelines should be included. This, however, has to be done subject to "legal unbundling of gas trading and transmission business" and setting up of independent system operator (TSO) as well as online booking of capacity to ensure transparent allocation of capacity, according to the minutes.

For GAIL's main truck line of Hazira-Vijaipur-Jagdishpur (HVJ), it wanted pipeling building cost not to be included as it is fully depreciated.

BP India supported unified tariff for all cross country interconnected pipelines of all entities and not of a single entity as otherwise, it would create distortion in the transition from entity wise unified tariff.

"Unified tariff would lead to an increase in the share of gas in energy basket and development of the market," it said.

GAIL, according to the minutes of the meeting, said its proposal is for unified tariff for all its interconnected pipelines and all other lines can be integrated in phases.
Unified tariff, it said, would help reach gas to far-flung areas and development of gas market to increase the share of gas from current 6.5 per cent to 15 per cent. It would also avoid the cascading impact of tariff and eliminate the differential tariff between the customers nearer to source and away from the source.

"Old customers are getting cheaper gas as well as levied a lower tariff. New customers are getting costlier gas and levied a higher tariff. The problem of higher tariff for customers near to the source of gas can be managed by making some sort of zonal recovery of tariff within unified tariff," it said.

GAIL said like unbundling being a separate exercise, the issue of creation of independent TSO is also an independent exercise which a committee will take care in the future.

Hazira LNG Pvt Ltd, which is owned by Shell and Total of France, supported the option of unification of all the inter-connected cross-country natural gas pipelines of all the entities but excluding bid out pipelines as changing tariff for bid out pipelines have certain other (contractual) implications.

Reliance Industries said unification of tariff should be for all cross country interconnected pipelines (including bid out pipelines) of all entities and not of a single entity.