Real Estate Update
October 07, 2003
Gas Pipeline Policy In The Pipeline & Power Traders to Shell Out Big Bucks For Licence
On the 29th of September, 2003 the Central Government released a draft natural gas pipeline policy that envisages construction of future gas transportation network, based on the common carrier principle. The Gas Authority of India Limited ("GAIL") has been nominated as the coordinator of cross-country gas pipelines, thereunder.
The policy will apply to all fresh pipeline projects that are longer than 100 km in length. Any producer of gas will have the right to sell gas within 100 kms of well-head or land-fall point to consumers directly and lay the pipeline for this purpose, subject to prior permission of the Central Government, which shall regulate transportation of gas until appointment of a regulator under the Petroleum Regulatory Board Bill, 2002. Existing pipelines and projects already approved, such as Reliance Industries' proposed Kakinada-Goa and Jamnagar-Calicut pipelines, fall outside the purview of the new policy.
The salient features of the draft policy are as follows:
The policy envisages GAIL to act, akin to the PowerGrid Corporation in the power sector, as the central network builder and the central coordinator for gas across the country with local and regional load centres to coordinate the distribution at the regional levels. The policy seeks to promote investment in gas pipelines and will provide a policy framework for the systematic development of gas sector.
Power Traders to Shell Out Big Bucks For Licence
The Electricity Act, 2003 ("Electricity Act") had permitted private sector players to enter the power trading business subject to procurement by such private parties of a licence in this regard. Section 52 of the Electricity Act entrusts the Central Electricity Regulatory Commission ("CERC") with the task of issuing licences to entities planning to take up inter-state electricity trading and also to specify the capital adequacy norms, technical requirements and credit worthiness for undertaking such trading. The CERC has now prescribed an application fee of Rs 0.5 million and an annual licence fee of Rs 2.5 million to be paid by companies planning to foray into the power trading business.
Further, companies planning to foray into the power trading business may be required to bring in a minimum capital of Rs 100 million. According to the power regulator, while the minimum capitalization requirement has been proposed at Rs 100 million, this may increase based on the quantum of power to be traded. Accordingly, companies trading between 50 and 100 million units a month might be required to infuse Rs 150 million in the business. Companies trading between 100 and 150 million units a month may have to bring in Rs 250 million. For the 150 and 200 million units a month band, the regulator has prescribed a minimum capital employed criterion of Rs 350 million and for the 200-250 million units a month band, the minimum capital employed criterion has been set at Rs 500 million.
Before the coming into force of the Electricity Act, 2003, power trading was not a distinct licensed activity and there were no capital or licence fee norms, as Power Trading Corporation had a monopoly over the power trading business. But now, since other players can enter the business through a licensing regime, the regulator has set the conditions to ensure that power traders can cover the financial liability arising out of the maximum trade transacted by them. The entities will also have to intimate the regulator before they can trade more than what is prescribed in the original licence.
Apart from the financial conditions placed by the regulator, technical standards for prospective traders have also been set. Not only are they be required to understand the market and the operations of the system, they should also be able to conduct commercial transactions. Traders should further be capable of communicating with business partners and system operators by installing adequate communications facilities.
Under the new norms, three forms of trading contracts have been envisaged, namely long-term bilateral contracts, short-term forward trading contracts and spot trading contracts.
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