To make natural gas available to those who currently do not have access, the Government is working on gas swapping guidelines.
This is mainly because of the drop in gas production from domestic sources and increasing dependence on imported gas, official sources said
Under the swapping arrangement, a company supplies gas to another entity in the business at a location sought for by the latter. In exchange, the second entity agrees to pay for all the supply costs involved.
Any additional cost or tax incidence on account of such a swapping arrangement will have to be borne by the beneficiaries – mainly industrial users – as the arrangement is being put in place for their benefit, the draft guidelines of the Ministry of Petroleum & Natural Gas stipulate. In other words, the customer will have to be ready to pay a higher price.
Gas swap draft
The draft envisages that the gas allocations (gas allocation is done by the Government) and the consequent supply to the allottee will not change on account of a swapping arrangement where the entity is either a beneficiary of the swap or a party affected by it.
It further stipulates that operationalisation of swapping should be such that all the parties involved are revenue neutral only with respect to contracts existing prior to the swapping arrangement. The companies are expected to submit their views to the Ministry of Petroleum & Natural Gas by October 14.
Operational issues
Industry sources told Business Line that effective implementation of swapping can only happen if operational issues faced by gas transporters, such as GAIL (India), Reliance Gas Transportation Infrastructure Ltd, and GSPC, are addressed. The official said there have been instances when transportation tariff has been hit because of swapping.
By definition, a swap is meant to take advantage of transportation systems efficiency. In the gas segment, it is a one-way flow through the network. The non-availability of domestic gas in certain areas has made the transporters opt for swapping it with imported LNG, which also flows in the network.
Transportation tariff
According to the Petroleum & Natural Gas Regulatory Board regulations, the transportation tariff is calculated on the contractual agreement between a transmission company and a buyer and not on the source of gas. As a result, the transporters cannot levy transportation tariff twice.
Another issue that needs to be addressed is which tax will applicable to swap arrangements – central sales tax or the local value-added tax, industry sources said.