Oil Regulator Revises Tariff For Transporting Petroleum Products Via Pipelines
The Petroleum and Natural Gas Regulatory Board has notified an independent yardstick to determine tariffs, which was earlier benchmarked to railway freight rates.
India's oil regulator has revised tariffs for transporting petroleum products via pipelines across the country, potentially boosting pipeline infrastructure in the country and offering financial stability to its operators such as GAIL (India) Ltd., Petronet LNG Ltd. and oil marketing companies such as Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp.
Effective from Aug. 1, the Petroleum and Natural Gas Regulatory Board has notified an independent yardstick to determine tariffs, which was earlier benchmarked to railway freight rates. Currently, India transports 56% of petroleum products through pipelines, 23%-25% via railways and the remainder through road.
The board, in its latest notification on Friday, said tariffs for the first category of non-bid pipelines, commissioned before its regulations issued in 2010, will be 75% of rail tariffs for petroleum products and 100% for liquefied petroleum gas, with the option of 17% tariff escalation till March 31, 2025, and 3.4% annual escalation from FY26.
Pipeline entities will also get a one-time option to determine tariffs on a discounted cash flow basis, if investments are made to upgrade or repair pipelines.
For the second category of non-bid pipelines—commissioned after 2010 regulations—the regulator said tariffs will be decided on the discounted cash flow method, with 12% return on capital employed for the economic life of the pipeline. This is similar to the methodology used for natural gas pipelines.
Tariffs for the third category of bid-out pipelines, that were authorised before the pipeline amendment regulations of 2023, were determined by the regulator as quoted by the bidders. These tariffs were for the first 10 years of the operations and were to be reviewed later by the regulator for the rest of the life of the asset.
However, under the new regulations, such pipelines will get a 12% return on capital employed from the 11th year of the project for the rest of their life, considering the net fixed asset is decided at the beginning of the 11th year.
The petroleum product pipeline regulations were introduced in 2010 exclusively for non-bid pipelines. It benchmarked their tariff at 75% of rail tariffs for petroleum products and 100% of rail tariffs for LPG.
But rail tariffs haven’t changed since 2018, and neither were they adjusted for inflation since then. Also, rail tariffs are based on macroeconomic model that discounted the costs incurred by the pipeline entities. Under these circumstances, it became necessary to come out with an independent basis to determine tariff for petroleum product pipelines, PNGRB said in a statement.
'Boost To Pipeline Infrastructure'
According to AK Jain, chairperson of PNGRB, the reform will bring financial stability and boost pipeline infrastructure growth in India. It’s also likely to alleviate road congestion, minimise accident risks, and reduce pollution from road transport, he said.
AK Tiwari, member of PNGRB, told NDTV Profit that the regulation will provide the option to pipeline entities to pool their resources for creation of common infrastructure as the new regulation will incentivise them on tariff and return on investment. “It will also help in passing on the cost benefits to the end consumers.”
The regulation should be seen as a catalyst to broaden the petroleum product pipeline network; that would help in safe delivery on the one hand, and decongestion of roads and rail networks on the other hand, he said.
