PNGRB Increases Tariffs for Petroleum Product Pipelines

The Petroleum and Natural Gas Regulatory Board (PNGRB) has announced a significant revision in tariffs for petroleum product pipelines, effective August 1, 2024. The new regulations aim to ensure a reasonable return for pipeline operators while considering inflationary pressures.

For pipelines commissioned before December 2010, the tariff will be indexed to 75% of the basic railway freight, with a one-time increase of 17% to account for past inflation. Subsequently, an annual escalation of 3.4% based on the Wholesale Price Index (WPI) will be implemented.

Pipelines commissioned after December 2010 will have their tariffs determined through the discounted cash flow (DCF) method, ensuring a 12% post-tax return on capital employed. This approach also applies to pipelines whose initial tariffs were auctioned.

The PNGRB’s decision to benchmark pipeline tariffs against railway freight is aimed at establishing a more equitable pricing mechanism. However, it acknowledges the inherent differences between the two modes of transportation, with railways operating on a macroeconomic model and pipelines requiring substantial capital investment.

The new regulations are expected to impact the financial performance of pipeline operators, with companies like Indian Oil Corporation and Reliance Industries likely to benefit from the tariff increase. However, the potential impact on fuel prices for consumers remains to be seen.

The PNGRB’s move underscores the government’s efforts to create a more efficient and sustainable petroleum product transportation infrastructure while ensuring a fair return for pipeline operators.

“This reform aims to provide the financial stability and attractiveness needed to boost pipeline infrastructure growth in India,” said Anil Kumar Jain, chairperson of PNGRB.

He further added, “Despite a 17% hike in the railway-derived tariff for these pre-PNGRB pipelines, the tariff will remain much lower than those for the other two sets of pipelines, said Pankaj Bhutani, head of commercial at PNGRB. “The share of transport tariff in product price is barely 2-3% and so would have little impact on product prices. Second, most of the older pipelines are used for captive purposes, and the tariff is only notional.”

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.