KOLKATA (miningweekly.com) – The Indian government is expected to approve a national gas trading hub within the next two months.

Sources say that sector regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB), has finalised draft rules for operation of the gas trading hub and that they will be forwarded to the union Cabinet of Ministers for approval.

“We will soon be setting up a gas trading hub that will allow ease of access to gas suppliers and buyers and this will, in turn, help India develop its own hub-based pricing,” Petroleum and Natural Gas Minister Dharmendra Pradhan said recently.

Currently, India’s domestic gas price is determined through a formula that benchmarks the gas price to that prevalent in the US, Canada, the UK and Russia and is announced every six months.

The sources say that the domestic gas trading hub will facilitate both short- and long-term domestic gas pricing based on a transparent price discovery mechanism at the trading exchange.

Most significantly, the rules finalised by PNGRB are believed to lay down that no natural gas pipeline operator will be permitted to have majority control in the proposed trading hub to eliminate risks of conflict of interest.

This will mean that State-run natural gas transportation, trader and logistic provider, GAIL India, which operates 11 400 km of pipeline network will not be permitted to pick up a majority stake in the trading hub as earlier envisaged.

Participation of GAIL in the trading hub has been the bone of contention between the natural gas company and the government since last year. The government has proposed splitting up GAIL’s business verticals of natural gas marketer and pipeline operator into two separate companies so that its stake in the proposed trading hub does not lead to conflict of interest in its being the most dominant pipeline operator in the country and potentially controlling access to other buyers and suppliers at the exchange.

GAIL is opposing splitting up of the company.

However, under the draft rules finalised by the sector regulator, national oil exploration and production major ONGC could be expected to float a special purpose vehicle (SPV) to set up the trading exchange and other companies, like GAIL or overseas investors, could pick up stakes in the SPV, but on condition that no single entity will have the majority stake in the operating company.

The proposed trading hub will operate as a virtual and physical exchange and, according to timelines set by PNGRB, it will take six months to operationalise the exchange from the date of approval by the union Cabinet of Ministers.