PNGRB Overhauls Pipeline Tariff Rates for More Efficient Petroleum Transport

The Petroleum and Natural Gas Regulatory Board (PNGRB) has redefined pipeline tariffs for third-party users, segregating pipelines into three categories based on commissioning dates and updating tariff calculation methodologies to foster financial stability and infrastructure growth. The new tariffs will be effective from August 1, 2024.

The Petroleum and Natural Gas Regulatory Board (PNGRB) has announced a significant revision in tariff rates for third-party users of 'common carrier' pipelines. The board, under the PNGRB Act, holds the authority to set tariffs for pipelines used by companies to supply oil and gas. Previously, these tariffs were guided by railway tariffs, but the board has now introduced independent criteria for determining pipeline tariffs.

Classified into three segments, the pipelines are divided based on their commissioning dates against the backdrop of the Petroleum Products Pipeline Transportation (PPPL) tariff regulations of 2010 and the PNGRB Amendment in PPPL Authorization Regulations, 2023. For pipelines that were commissioned before the PPPL tariff regulations of 2010, the transportation tariff for petroleum products (excluding LPG) will be 75 per cent of the basic railway freight. For LPG, it will match the basic railway freight with a one-time escalation of 17 per cent until March 31, 2025.

Starting April 1, 2025, an annual escalation of 3.4 per cent will apply based on Wholesale Price Inflation, unless WPI changes by 0.5 per cent in either direction. Additionally, these pipelines can opt for tariff determination based on the discounted cash flow (DCF) method for capital expenditures related to replacements, expansions, or augmentations.

For pipelines commissioned post-2010, the DCF methodology with a 12 per cent post-tax return on capital employed over the pipeline's economic life will determine the transportation tariff. This approach aligns with the methodology for natural gas pipelines. For bid-out pipelines authorized based on bidding parameters for the first 10 years, tariffs will also follow the DCF methodology with 12 per cent returns over the remaining economic life, taking the Net Fixed Asset value of the 11th year as a starting point.

Effective August 1, 2024, following the PNGRB amendment regulations, bidders are expected to quote tariffs spanning the entire 25-year lifespan. Anil Kumar Jain, Chairperson of PNGRB, highlighted that this reform seeks to promote financial stability and attractiveness, which are essential for boosting pipeline infrastructure in India. By prioritizing pipeline transport, the initiative aims to reduce road congestion, minimize accident risks, and curtail pollution from road traffic, ultimately offering consumers a more economical and sustainable alternative to road transportation.

The board pointed out that the revision was necessary because railway goods rates have not been updated since 2018, and the inflationary impacts haven’t been reflected in the pipeline tariffs based on these rates. (ANI)