It doesn't give regulator power to determine tariffs
The Supreme Court ruling in favour of Indraprastha Gas Limited (IGL) and against the Petroleum and Natural Gas Regulatory Board (PNGRB) points to a serious infirmity in the PNGRB Act more than anything else. At the heart of the dispute is the fact that, quite incorrectly, the petroleum ministry had allocated gas distribution in various cities before PNGRB was set up—as a result, there were questions over the regulator’s powers over existing firms like IGL. After it came into being, PNGRB began looking at IGL’s transportation tariff—in April 2012, PNGRB ruled that IGL’s network tariff had to be R38.58 per mmBtu versus the R104.05 the firm had submitted, and the compression charges were reduced from R6.66 per kg submitted by IGL to R2.75. All told, according to an Edelweiss research report, the order would have cost IGL anywhere between R900 crore to R1,200 crore. When IGL won the battle in the Delhi High Court in June 2012, PNGRB went to the Supreme Court which struck down the appeal on Wednesday.
While the PNGRB counsel argued that the Act had accidentally omitted the term ‘city network’ in Section 11(e) and that the court ‘must adopt the principle of purposive interpretation’ keeping in mind what the legislature must have intended, the Supreme Court refused to do so—indeed, the government counsel submitted that the legislative intent was never to empower PNGRB to either fix gas tariffs and, to the extent transportation tariffs were to be fixed, this was only meant to be for third-party users of gas distribution networks like IGL’s. Indeed, the SC said since the power to fix the tariff had not been given to the Board and the Board could not frame a regulation on a power it did not have, the ‘said Regulation deserves to be declared ultra vires, and we do so’.
PNGRB will probably appeal the judgment, but the government needs to look at the infirmities in the Act since, in its current form, there is no one to ensure monopoly city-gas suppliers don’t take customers for a ride. In any natural monopoly such as city-gas or electricity supply, tariffs are regulated to take care of consumer interests. This is relaxed, as it has been in telecom, only when there is competition to take care of prices. So, in the case of telecom, when there were enough telcos, the Trai stopped checking tariff levels. In the case of the electricity sector, the regulators tried to bring in competition by introducing the concept of ‘open access’ but since this has been delayed for one reason or another, tariffs continue to be regulated. Introducing such competition in the city-gas sector, it is true, has always been part of the government’s plan. But this has not happened as yet and, even when it does, this requires PNGRB to be able to set transport/ compression tariffs for new players in the same way electricity regulators set wheeling charges. After all, protection of consumer interests is an integral part of not just PNGRB’s mandate, it is something the petroleum ministry also wants.