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The PNGRB has initiated a public consultation process to amend pipeline tariff regulations. The key proposals are 1) just two (currently three) unified tariff zones; 2) zone-1 tariff for CNG/domestic PNG for all CGDs; 3) for isolated networks, unified zone-1 tariff to be the floor; and 4) for pipeline fuel requirements, transporters will need to tie up gas for at least five years. The proposed changes are progressive and make delivered domestic gas costs for CGDs nearly uniform. However, as overall transmission costs are low versus gas costs, the impact is small. CGDs in the hinterland, such as IGL, will benefit. They will be largely neutral for MGL and marginally positive for GAIL

PNGRB proposes tariff regulation changes based on industry suggestions

Based on the suggestions from the Industry Committee (IC), the PNGRB has started a public consultation process to amend the natural gas pipeline tariff regulations. In our view, the proposed changes are progressive and yet another step to bring nearly uniform tariffs across the country. However, as unified tariffs are already in place across the national gas grid, and as the pipeline tariffs are a small part of the overall gas costs for end-customers, the impact is relatively small.

Key proposals: Two tariffs across country; zone-1 tariff for CNG/D-PNG

* Just 2 unified tariff zones:

with zone-1 of 300 km from the unified entry point, and the remainder of the national gas grid is proposed to be under zone-2. Currently, the unified tariff has three zones, with a second zone of 900 km on either side of the 300 km zone-1.

* CNG/domestic PNG to have zone-1 unified tariff:

This provision will bring nearuniformity in domestic gas costs for CGDs and will benefit CGDs in the hinterland. For IGL, we estimate an overall benefit of Rs42/mmbtu (US$0.5/mmbtu), with EBITDA benefit of Rs1.6/scm. This will bring some respite for IGL, which has struggled to raise price in Delhi NCT. For MGL, the impact will be minimal.

* For isolated networks, zone-1 unified tariff to be the floor:

Under existing tariff regulations, tariffs are determined on the basis of 75% capacity as the volume divisor. With much lower volumes, in a few networks, GAIL is not even able to recover the opex. However, as volumes are small, at around 5 mmscmd, the benefit will likely be only about 2.5% of GAIL’s FY2026E EPS.

* Requires entities to tie up LT gas for fuel usage:

With APM gas not being available, the PNGRB’s assumption of gas cost for internal consumption was a key challenge by GAIL for its integrated network tariff. This provision will ensure stability of tariffs and avoid frequent changes.

We estimate unified zone-1/2 tariff at Rs60/91 per mmbtu

Assuming ~15 mmscmd of CNG/domestic PNG volumes currently in zone-2/3 move to zone-1, we estimate zone-1 unified tariff of Rs60/mmbtu and zone-2 tariff of Rs91/mmbtu. The increases in the tariffs for zone-1/2 of Rs18/11 per mmbtu (US$0.2/0.1 mmbtu) or reduction of Rs16/mmbtu (US$0.2/mmbtu) for current zone-3 are relatively small to impact the overall gas demand outlook.

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