Consumer’s call

Consumer’s call
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First Published: Tue, Mar 20 2007. 11 59 PM IST
Updated: Tue, Mar 20 2007. 11 59 PM IST
Activity in the piped-gas business is beginning to escalate. There are reports of Reliance Industries Ltd tying up with state-owned oil major IOC for city gas distribution and a host of other companies have outlined their plans over the recent few months. The market seems set to expand after initial experiments failed to deliver much in Mumbai, Delhi and parts of Gujarat. So, for the pan-Indian consumer, slave to supply hurdles in LPG cylinders, will piped natural gas become a broad-based, viable option?
Much will depend on how the new regulator (Petroleum and Natural Gas Regulatory Board) takes the recent gas pipeline policy guidelines forward in promoting competition and securing consumer interest—gas availability and reasonable tariffs.
The supplies have to be brought in from the fields, through trunk pipelines across states, and then transported to homes in a city through city networks. Pipelines to take this gas to big industry users (power and fertilizer) and to retail consumers are the logical next step—about $4 billion will likely be spent on this by 2012. To encourage growth of this nascent sector, the Centre had announced a pipeline and distribution network policy in December 2006.
Two key aspects of the policy will shape the market’s competitiveness. First, its exclusion of those who don’t have a gas source from setting up pipelines—aimed at keeping out non-serious bidders. However, this also restricts competition. Given the fairly decent chances of finding more gas in the ongoing active exploration, a prospective bidder with no current supply who’s not allowed to build a pipeline today may secure it subsequently. He would have lost time in building the infrastructure to transport the gas. More importantly, this also precludes the possibility of a more competitive pipeline asset creation by players purely in the business of pipelines.
The second issue is that of competitive play within a city. There are two aspects to the city gas business—one, laying the pipelines across the city and two, the service, or distribution of gas. The first seems to be a natural monopoly, since duplication in pipeline assets may not be economically viable. The policy allows for open access—for all players who want to use the pipelines to supply gas. But the conditions would have to be spelt out by the regulator, so that competition is adequately ensured. This could prove to be quite complex in reality.
In the case of gas distribution, a period of marketing exclusivity will be set by the regulator—the bidder who wins the deal to build the network will have exclusive rights on that city market for a fixed time, depending on the city’s market size, location etc. It’s interesting that while domestic companies are all for open competition in services, the multinationals want monopoly profits to make the business attractive, as the returns are to be capped by the regulator, based on costs. Here, it is a moot issue if, after the fixed period is over, the market would see real competition, as entry barriers could remain high in this business.
For the consumer, it makes more sense to let competition prevail under the regulator’s watchful eye. Also, though the government said unwarranted price hikes would be checked, we need clarity on the tariff regime. It is not enough that a company says, as of today,that it can provide equivalent piped gas at less than the cost of an LPG cylinder. In fact, we should simultaneously let LPG be sold under a free market regime. Competitive pricing will happen when the consumer gets to make the calls.
How can consumers benefit better from developments in city gas distribution? Write to us at views@livemint.com
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First Published: Tue, Mar 20 2007. 11 59 PM IST
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