Choking On Power

Three years after its constitution, the Petroleum and Natural Gas Regulatory Board (PNGRB) is embroiled in a battle for power with the Ministry of Petroleum and Natural Gas over the authority to issue licences for city gas distribution (CGD) systems. This, after a bill to constitute the board was moved by the government after more than half a decade of deliberations, and another year before the President’s consent came through. The government, which had earlier vested the authority to issue licences on the regulator, now wants to do it itself, allowing the PNGRB to only decide tariffs.

 

Officials in the ministry told BW that the government is pushing for the amendment of Section 16 of the PNGRB Act, which determines the power to issue licences. In its judgement of 21 January, the Delhi High Court ordered that PNGRB cannot issue licences for CGD on technical grounds. PNGRB has decided to challenge the judgement in the Supreme Court. This is likely to be the beginning of a protracted war.

 

The ministry had filed an affidavit based on the government’s notification of the PNGRB Act, 2006, except Section 16. This is in variance to the government’s stand and commitments made by ministers in Parliament.

 

Caught in the crossfire are the eight companies that had won the last auction in April 2009. Company executives were not willing to go on record, but confirmed tense calculations. “There is little we can do,” says one. Whichever way the battle goes, the consumer will be the loser.

 

Only 9 per cent of India’s fuel needs are met by gas, as opposed to the global average of 24 per cent. The consumption of gas in the country is largely institutional and CGD is only available in 20 Indian cities and towns.

Problems Of Infighting

There has been continuous friction between the board and the ministry. Ministry officials had threatened to clip the regulator’s wings while the regulator blamed officials for creating unworkable processes for allocation of CGD.

 

The problem of who gets the power to issue licences has invited censure from other quarters as well. Former GAIL chairman and managing director, U.D. Choubey, recommends a total revamp of PNGRB systems. He says the strict norms are hindering the gas sector’s growth. 

 

 LOW, UNEVEN FLAME 

The Petroleum and Natural Gas Regulatory Board (PNGRB) had a slow and bumpy start, and is now struggling to retain its powers

2006: The PNGRB Act is passed by Parliament. Appointment of chairman and members begins in October

October 2007: Board is formally constituted after delays, amid allegations that the Ministry of Petroleum and Natural Gas (MoPNG) did not follow proper procedures

March 2009: PNGRB rejects Indraprastha Gas’s (IGL) contention that it had authorisation to distribute gas in Ghaziabad. The board invites other bids for the city

April 2009: PNGRB issues gas licences for six cities — Kakinada (AP), Dewas (MP), Kota (Rajasthan), Mathura and Meerut (UP), and Sonepat (Haryana)

May 2009: IGL moves the Delhi High Court challenging PNGRB’s powers to give out licences

June 2009: In the second round, bids are invited for seven cities. But a court order restrains the licences awarded by PNGRB

January 2010: The Delhi High Court issues order stopping the regulatory board from issuing licences

 

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There have been loopholes in the bidding process as well, which, analysts note, has enabled CGD bidders to cross-subsidise the network tariff from marketing margins. Also, though the promotion of fair markets is one of PNGRB’s objectives, it allows companies five-year exclusivity in CNG and piped gas retailing in a city. “This makes it difficult for a new player to enter the market,” says an analyst, and defeats the objective of ensuring supply to priority areas at affordable rates.

 

S. Sundereshan, the new PNG secretary, makes it clear that the government would be the licence issuance authority. “We are reading the judgement and we will draw out a strategy soon,” says Sundereshan. There is also a view among insiders that the government is not happy with some of the board’s office-bearers.

 

Sundereshan says the ministry will soon discuss the fate of the bidders who were allocated CGD sites prior to the judgement. A discussion will also take place with PNGRB.

 

The PNGRB chief, Labanyendu Mansingh, is also hopeful of resolving the issues. 

Despite what the ministry claims, the gas regulator’s run did help the sector in many ways. For example, 333 cities have already been identified for CGD supply in the next five years. 

 

Mansingh strongly advocates the need for fair competition among private players and PSUs. However, a leading analyst says that some PSUs’ actions have been akin to “reserving with a handkerchief”.

 

PNGRB officials feel that if the government takes over the function of issuing licences, it has to ensure that there is no bias towards government’s own agencies (for example, several CGD licences have already been given to GAIL ventures), and that no political considerations play a role. A case in point is BSNL benefiting from the powers vested with the Department of Telecommunications at the expense of private players.

 

 

Source: BW Research

 

 

Parallels are also being drawn to the government’s recent announcement of its intention to constitute a National Gas Highway Authority of India (NGHAI) on the lines of the National Highways Authority of India, with regulatory powers for laying upstream pipelines in the country. A Cabinet note on this has been sent to various ministries for comments. Earlier, this power was vested with the PNGRB.

 

Mansingh feels the situation is a result of bureaucratic troubles. “But I believe this is a transition period. I am the first chief of this regulator; I have to set the norms for the generations to come. People (initially) were opposed to Trai (Telecom Regulatory Authority of India).”

 

He also says the ministry has added to the confusion. “They should have disbanded the ministry’s marketing division once the board was formed, but they did not,” he says. “If powers have been delegated to us, let us work.”

 

Well-defined Roles

A quick and impartial resolution of the issue is crucial. In fact, bringing more areas under CGD systems will reduce the burden on the exchequer by lessening dependence on imported crude oil. In the first three quarters of fiscal 2009-10, India had LPG subsidy under-recoveries of Rs 21,000 crore, and Rs 43,000 crore on petrol, diesel and other petroleum products.

 

Globally, the regulator is the licencing body — in Pakistan, South Korea and Indonesia, for instance. There has to be a clear separation in the roles of the state and the regulator — the state lays down the broad policies while the regulator executes them. The mishandled 3G auctions in the telecom sector is a prime example. Says a leading market analyst: “The government must work towards strengthening an established regulator rather than making it a redundant body.”

 

anilesh dot mahajan at abp dot in

(This story was published in Businessworld Issue Dated 29-03-2010)