The Petroleum and Natural Gas Regulatory Board (PNGRB) has announced a major overhaul of the tariff policy for petroleum product pipelines in India. The new policy, unveiled on Friday, replaces the previous system that was tethered to railway freight charges with a standalone criteria designed to incentivise infrastructure investments and address the evolving financial dynamics of the industry.
The reform comes in response to growing industry concerns about the inadequacy of the old tariff model. According to a partner at Deloitte India, the previous linkage to railway freight rates failed to account for the rising operational and maintenance costs associated with pipeline infrastructure. “With railway freight charges stagnating, the costs for pipeline operations—ranging from manpower to utilities—have continued to rise. This update aims to attract more capital expenditure, leading to an increase in pipeline installations and a reduction in the reliance on road and rail transport for petroleum products,” the Deloitte partner explained. PNGRB Chairperson emphasised that the new tariff structure is designed to enhance the financial viability of pipeline projects. “This reform prioritises pipelines, which are the most efficient mode of transportation for petroleum products. By doing so, we aim to alleviate road congestion, reduce accident risks, and cut down pollution from road transport,” he said. The revised tariffs are expected to offer consumers a more cost-effective and environmentally friendly alternative to road transport.
Under the revised policy, pipeline tariffs will no longer be tied to railway freight charges. Instead, they will follow a new formula akin to those used for gas pipeline tariffs. This change is anticipated to provide a more stable and fair return for pipeline operators, addressing the previous stagnation in tariff adjustments despite rising operational costs. From Fiscal Year 2025 onwards, an annual escalation of 3.4% will be applied, based on the compound annual growth rate of the Wholesale Price Index (WPI) over a rolling ten-year period. This mechanism will ensure that tariff adjustments keep pace with inflationary pressures, provided there are no significant fluctuations in the WPI.
Overall, the PNGRB’s revised tariff policy marks a pivotal moment in India’s energy infrastructure sector, poised to spur investment and modernise the country’s petroleum transportation network. By enhancing the financial attractiveness of pipeline projects, the new policy aligns with broader goals of infrastructure development and environmental sustainability.
