Petroleum Regulator's Pipeline Tariff Hike To Come Into Effect On Aug. 1
The new regulations aim to provide financial stability and attract investment in the pipeline infrastructure.
The Petroleum and Natural Gas Regulatory Board's new tariff regulation for transporting petroleum products via older pipelines will be applicable from Aug. 1, replacing the system that has existed in the country since December 2010.
The new regulations, which were announced on July 26, cite a 17% hike in tariffs for older petroleum product pipelines and a 3.4% annual escalation in tariffs for the next financial year.
History Of Pipeline Tariffs
Earlier, the PNGRB relied on railway tariffs to set pipeline tariffs. However, these have not been updated since 2018, which has led to concerns about inflation and a lack of reflection of pipeline costs.
The new regulations introduce an independent yardstick for pipeline tariffs, aim to provide financial stability and attract investment in the pipeline infrastructure, according to the regulator.
Pipeline Categories
The latest regulations address three categories of pipelines:
Pipelines operating before 2010: These pipelines will see a one-time increase on the existing 75% railway freight tariff, valid until March 2025. After that, an annual escalation based on the wholesale price index is applied. Additionally, an option for a discounted cash flow method based on replacement or expansion costs is available.
Pipelines operating after 2010: These pipelines will use the DCF method with a 12% post-tax return on capital employed, similar to natural gas pipelines.
Bid-out Pipelines: For pipelines with a pre-determined tariff for the first 10 years, the DCF method with a 12% return on remaining economic life will be used after the 10th year.
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Expected Benefits
The hike in pipeline tariffs benefits companies that own and operate petroleum product pipelines, as revenues are poised to rise. Examples of such companies in India include Indian Oil Corp., Reliance Industries Ltd., GAIL (India) Ltd., Hindustan Petroleum Corp. and Bharat Petroleum Corp.
The tariff hike does have negative implications for companies that use the pipelines, as they will face increased transportation costs.
