A splitting of GAIL (India) into pipeline and gas-marketing entities seems imminent as the government has come to the view that it is necessary to create a gas-trading hub in the country and bring in transparency in price determination through an exchange.
According to two government officials involved in the discussions, for making infrastructure available to customers in an unrestricted and fair manner, it is required that pipeline infrastructure and gas marketing are separately owned. This is also a global norm.
“Pipelines are public utilities. Globally too, pipeline operations and gas marketing are separated so that customers’ interest is protected,” said one of the officials.
GAIL has a pipeline network of 11,000 km and it is set to go up as it has been entrusted to execute the Urja Ganga pipeline project which aims to connect the east and northeast parts of country with pipelines.
In 2016-17, the company earned 71% of its revenue through gas marketing, accounting for 28% of profits, whereas natural gas transmission business accounted for 10% of the revenue and 46% of the profit. The total revenue of the company in that fiscal was `48,789 crore and profit after tax stood at Rs3,503 crore.
Earlier this year, petroleum minister Dharmendra Pradhan had said that GAIL should focus on pipelines as “marketing can be done by anyone”.
The Section 21 of the Petroleum and Natural Gas Regulatory Board (PNGRB) Act provides the downstream regulator with the responsibility that infrastructure and marketing arms of state-run utilities should be separated and this can be implemented through regulations.
However, since the industry needs to mature, the Act provides for stage-wise separation of such entities. While the first stage stipulates separation of accounting for pipeline and marketing, the second is to make the marketing company a subsidiary. The third stage is ownership unbundling which means ownership has to be separated. However, when it came to the second stage in 2014, GAIL went to court against resisting the move and the case is yet to be decided.
“Now it seems the government also has understood (that the two businesses should be separated) and customers are also complaining that they are facing issues (with the current consolidated set-up). It seems with court or without court, the issue will be resolved and then the third stage of unbundling can kick in,” said the official quoted above, and added that the split can be done through an administration decision as well.
Pradhan, in a written reply in Parliament in December 2017, had said, “OIDB (Oil Industry Development Board) has been entrusted to engage a consultant for carrying out a detailed study on the current state of Indian gas sector, government priorities and to recommend further course of action for establishment of a gas trading hub or exchange in the country.”
Once the hub comes, then the issue of unified tariff will come in and unbundling is the basic building block of all reforms, according to the official quoted above. If the unbundling rule comes, it will apply to all state-owned companies in the market.