The petroleum ministry is planning to build in-competition principles in the functioning of the proposed regulator for long-distance gas pipeline networks so as to reduce natural monopolies in the gas distribution sector.
One of the outcomes would be that state-run firms such as GAIL, which got exclusive rights from the union government to distribute gas in various cities, may not get any edge over private players in laying long-distance gas pipelines, said a government official, who asked not to be named.
Besides, the government is also looking into whether the 33% surplus capacity a pipeline operator has to maintain for third party use is adequate.
The petroleum ministry, which recently shared a Cabinet note on the proposed National Gas Highway Development Authority (NGHDA) with the power and law ministries, wants to avoid the pitfalls of monopolies that are characteristic of any infrastructure sector as it is physically impossible to allow more than one player for a service in one region.
Competition authorities across the world maintain that the answer is to allow access to existing infrastructure to third parties at a reasonable price. The ministry will look at whether reserving 33% capacity for third party gas transmission may ensure competitive pricing of gas for commercial and domestic use.
The decision to make gas distribution rights more equitable stems from past experience. The existing city gas distribution regulator?Petroleum and Natural Gas Regulatory Board (PNGRB) earlier insisted that GAIL?s joint ventures that secured approvals directly from the union government before the regulator came into existence in October 2007, should get fresh regulatory approval.
The government had to defend its authorisation of a state-run agency in Parliament although preferring a state agency over private players is squarely anti-competitive. The policy maker itself being a player in the market gives rise to conflicts of interests and market distortions.
The ministry believes there is enough competition at the first stage, that is, issuing licenses to lay gas pipeline, which is based on a competitive bidding.
The proposed NGHDA is set to regulate long distance gas pipelines, while the existing PNGRB would continue with city gas distribution. Experts in the oil sector, however, said that the government should justify the need for having a new regulator taking away the powers of the existing one.
?Transforming an existing regulator and giving it more powers is one thing. But if a new one is created, it shows the existing regulator did not do its work properly. If that is the case, the government should introspect why it could not facilitate that,? said an economist, who was part of a panel appointed by the government to study the oil sector.