Revising the tariff structure of petroleum products pipelines transportation (PPPL), Petroleum and Natural Gas Regulatory Board (PNGRB) has announced new applicable rates for third party users of the ‘common carrier’ pipelines.  

For pipelines commissioned before the notification of PPPL tariff regulations 20.12.2010, the transportation tariff for petroleum products (other than LPG) shall be 75% of basic railway freight and for LPG 100% of basic railway freight as per railway goods tariff circular 19 of 2018 with a one-time escalation of 17% effective from the date these regulations come into force till 31st March 2025.

Thereafter from FY 2025-26, annual escalation @ 3.4% shall be considered based on 10 years CAGR of WPI (wholesale price inflation) on rolling basis unless there is change in the said WPI by 0.5% on either side. Additionally, these pipelines have been provided with a one-time option to get the tariff determined based on DCF (discounted cash flow) method  in case they incur capex on its replacement, expansion or augmentation.

For the pipelines commissioned after the PPPL tariff regulations 2010, the transportation tariff shall be determined based on the DCF methodology with 12% post tax returns on capital employed over the economic life of the pipeline. This is consistent with the methodology of natural gas pipelines.

For bid-out pipelines authorized prior to PNGRB Amendment in PPPL authorization Regulations, 2023 where pipelines have been authorized based on bidding parameters for first 10 years of pipeline operations, the transportation tariff shall be determined based on the DCF methodology with 12% returns over remaining economic life of the pipeline considering the net fixed asset (NFA) as on beginning of the 11th year of operations. Post PNGRB authorization amendment regulations, bidders have to quote tariffs for the entire life of 25 years.

PNGRB is mandated under the PNGRB Act to authorize Petroleum Product and natural gas pipelines. The Board approves Regulations to determine the tariff for third party users of the ‘common carrier’ pipelines. Unlike natural gas for which Tariff Regulations were first issued in 2008, for Petroleum Product Pipelines (PPPL), the Board has been relying on Railway Tariff for movement of petroleum products by rakes to fix the pipeline tariffs.  After an intensive exercise, the Board has now notified independent yardsticks for pipeline tariffs.

The superseded regulations for determining the transportation tariff were introduced in December 2010 and were designed as a transitional measure and applied exclusively to non-bid pipelines.

There are 3 kinds of petroleum product pipelines in existence: (i) non-bid pipelines commissioned before the notification of PPPL tariff regulations 2010 (ii) non-bid pipelines commissioned after the PPPL tariff regulations 2010, and (iii) Bid-out pipelines authorized prior to PNGRB Amendment in PPPL authorization Regulations, 2023.

These tariffs were established by benchmarking against alternate transportation modes of railways at 75% of the rail tariff except for LPG wherein it was set at 100% of the rail tariff, based on the equivalent rail distance along the pipeline route.

“Railway goods rates have not been revised since 2018, the pipeline tariffs based on these rates have not accounted for inflation during this period. Moreover, Indian Railway freight runs on a macro-economic model and does not account for the costs incurred by pipeline entities. There is also no assured rate of return in railway tariff.  Due to the above reasons, there has been a need to frame an independent basis to fix pipeline tariff for petroleum products” said a statement by the Petroleum and Natural Gas Regulatory Board.

Speaking on the move, Anil Kumar Jain, chairperson, PNGRB, said that these regulations will come into effect from 1st August 2024 with details available on the PNGRB website (www.pngrb.gov.in). Jain said that this reform aims to provide financial stability and attractiveness needed to boost pipeline infrastructure growth in India.

“By prioritizing pipelines, the most efficient transportation mode, this initiative will help alleviate road congestion, minimize accident risks, and reduce pollution from road transport. Additionally, the new tariffs will benefit consumers by offering a more economical alternative to road transportation for moving goods, embrace the change and support a greener, safer and more efficient future for petroleum transportation in India and is a step towards vision 2070 of the government of India” said Jain.