Inclusion of natural gas in the goods and services tax regime, pipeline tariff reform and pricing freedom for all domestic gas would be necessary to make the proposed gas trading hub a success, the chief of Petroleum and Natural Gas Regulatory Board has said. India is aiming to build a gas trading hub to help develop the domestic gas market, and the downstream regulator, PNGRB, is working out regulations for the proposed hub. “There will be so much confusion in trading gas on the hub without GST. People will withdraw. It will not be a happy situation,” PNGRB Chairman Dinesh Kumar Sarraf told ET. This is because tax rates on natural gas vary from state to state and it would be hard for buyers and sellers entering physical contracts on the exchange to juggle multiple rates, he said.
A single predictable tax rate would make it much easier for the market, Sarraf said. Natural gas, crude oil, jet fuel, petrol, and diesel were not included in GST when it was rolled out two years ago as states, heavily dependent on petroleum taxes, resisted it. Oil companies, however, have been demanding their inclusion, beginning with natural gas, as it would help them get the input tax credit. Reforming pipeline tariff regime is equally important and it, along with tax reform, should precede a gas hub, Sarraf said.
PNGRB is considering a new transmission tariff model that would let the tariff fixed separately for each entry and exit point of the pipeline, a shift from the current distance-based pricing. Another key reform needed is pricing freedom for all domestic gas as it would make available more gas for trading at the hub and lead to an efficient allocation of gas in the market, Sarraf said. “The government has no business to decide prices,” he said, adding that the current low global gas prices provide the right opportunity to reform as the effect on local prices would be minimal today.