Former Sebi Chief to Head Panel on Ending Monopolies in Gas Transmission and Marketing

Oil regulator has formed a committee under former Sebi chairman Ajay Tyagi to recommend ways of ending monopolies enjoyed by companies engaged in both transportation and marketing of natural gas and city gas retailing.

The eight-member committee has been asked to give its recommendations on splitting entities engaged in both transportation and marketing of natural gas, and ending the monopolies of city gas retailers where required, the Petroleum and Natural Gas Regulatory Board (PNGRB) said in an order.

The panel has been asked to submit its report in three months.

In mature markets, energy infrastructure is operated on a common carrier principle that gives access to third parties. Any user or supplier could access any gas pipeline, irrespective of who owns it. But that is not the case in India with users and suppliers often complaining of not getting access.

The government had a few years back considered splitting state-owned gas utility GAIL (India) Ltd by hiving off its pipeline business into a separate entity and selling it off to strategic investors. This is because GAIL owns more than two-thirds of the country's pipeline networking, getting it a stranglehold on the market. GAIL is also the country's biggest natural gas marketing firm and users often complained about not getting access to the company's pipeline network to transport their own fuel.

To resolve the conflict arising out of the same entity owing the two jobs of transportation as well as marketing of gas, bifurcating GAIL was considered. But that plan was dropped without any explanation.

Parallely, city gas operators have monopolies in supply of CNG to automobiles and piped natural gas to household kitchens for cooking in several cities. Third parties do not have access to their network of pipelines if they wish to supply the fuel.

Now PNGRB has constituted the committee to promote competition and provide a level-playing field in gas transmission and distribution businesses.

In its September 10 order, the regulator said the PNGRB Act of 2006 mandates it to ensure separation of activities related to natural gas marketing and transportation including ownership of the pipeline in case an entity engages in both marketing of natural gas and laying and operating pipelines.

PNGRB said its regulations state that "if an entity is engaged in both marketing of natural gas and laying, building, operating or expanding pipelines for transportation of natural gas, it shall, on or before March 31, 2017, create a separate legal entity so that the activity of transportation of natural gas is carried on by such separate legal entity and the right of first use shall be available to the affiliate of such separate legal entity."

However, this objective has not been achieved, it said. In addition, ending the exclusivity of city gas licences was important for opening up the gas market but the regulator faced hurdles to declare a licence area as common carrier upon expiration of given exclusivity.

"The declaration of geographical areas as common carrier or contract carrier is essential for ushering in fair competition and efficiency in the city gas distribution sector, which may benefit the end consumer," PNGRB said.

PNGRB said it is constituting an expert committee under Tyagi, who had previously dealt with gas issues when he worked as a senior bucrearact in the Ministry of Petroleum and Natural Gas.

The other members of the committee include A K Purwaha, former chairman of Engineers India Ltd, Shaleen Sharma, former head of BG India, and Sanjay Sah of Deloitte.

"The primary objective of the committee is to analyse global practices concerning the separation of transportation and marketing activities including ownership of the pipeline in the natural gas sector, assess the current situation in India, and recommend suitable measures to ensure effective implementation of separation of transportation and marketing activities in the natural gas sector," it said.

The panel has been asked to provide a "possible model for separation of transportation and marketing activities in the natural gas sector including ownership of the pipeline."

It would also "provide actionable recommendations for revising the exclusivity framework in the city gas distribution (CGD) sector" and "suggest measures to address legal challenges and ensure a fair and competitive market".

The committee would also suggest "pathways for geographical areas where exclusivity for laying, building or expansion of the CGD network has ended".