All for a grip on The Grid

For obvious reasons, state-owned gas major GAIL is far from convinced. There are apprehensions whether the entry of private players will finally benefit consumers in the form of cheap tariff for gas. And whether big private domestic players will exploit the lack of proper competition as no MNC has so far shown keeness to enter the sector.

For The Motion

• As an official of a leading private gas player puts it, private players cannot always depend on some other entity for pushing gas. For example, Reliance needs to push gas for Kakinada (KG Basin) to NTPC’s plant in Hazira and wants to lay a pipeline.

• Transport pipeline companies do not have monopoly on grids anywhere in the world. With multiple entry, players will have the option to choose and tariff will come down.

• Entry should be benchmarked with cost and quality and the most cost-efficient agency needs to be selected. This can happen when multiple players enter.

Against The Motion

• According to GAIL, multiple pipelines on the same route will lead to overcapacity and underutilisation, like in the US.

• Tariff will go up since only 25 per cent buffer has been proposed as open access and since there will multiple fees.

• Since the players will have tie ups for both source and market, the move will result in encouraging bundling of transportation and marketing, which goes against the basic premise of unbundling the two for competition.

• Some 38 countries, including France, UK, Spain and China, still have a single player in the grid.

At the crux of the issue is whether consumers will pay less for gas if mutiple players enter. As the draft policy states, a rate of return will be fixed on investments to recover the cost of the infrastructure. Hence, cost of the pipeline will be crucial. A player with more cost effective technology will be beneficial for consumers.

The draft policy is also for promotion of mutually-negotiated tariffs. As Vikram Mehta, chairman of Shell in India says, “There should be no conflict of interest. Consumers of gas must be able to negotiate directly with producers”. “We are in import of LNG and marketing of gas but if need be we can have our own pipeline too”, Mehta added.

The role of a regulator will be crucial in a multiple-player scenario. The regulator needs to ensure fair tariff and also stop cartelisation if there are only a few players. An effective regulator will bear fruits for its consumers in form of lower tariffs and efficient transportation of natural gas.