In Business World of 28 October 2003, I commented on the reluctance of the relevant minister to create a regulator for gas. He was not the only minister who liked to exercise power and patronage. As a result, a fair regulator was never created, and the gas market in India remains fragmented till today.
The new gas policy
The gas policy announced by the government is not really
new; most of it has been in place for some time. It is at least three years
since the government announced its intention of appointing a regulator. The
intention awaits the passing of the Petroleum Regulatory Bill. The government
did nothing for all this time; now it repeats its announcement, and adds the
obvious, that until one is appointed, it will act as the regulator itself. The
petroleum minister likes to feel important, and having discretionary powers
helps.
In telecommunications or power,
the role of a regulator is obvious. Competitors in these industries have to
cooperate in order to give customers seamless service. A caller has to be able
to call a customer of another service; power generators have to share
transmission lines and trade their surpluses. There is no such obvious role for
a gas regulator to play. In theory, anyone could lay a gas pipeline for his own
use or for hiring out. Pipelines do not have to interconnected. Since they are
capital-intensive, it is in everyone’s interest to hire out surplus capacity.
And the cost would keep overinvestment under check. An obligation on pipeline
owners to rent out capacity – to act as common carriers – may weaken the incentive
to overbuild; but such an obligation can be imposed on pipeline owners without
imposing a regulator on them. In fact, Ram Naik had announced his intention to
do so.
So what does the government want
the regulator to do? It expects him to prepare a “perspective plan for the
growth of gas pipeline network in various States and across various Regions in
consultation with the State Governments to enable industrial growth,
development of such networks and extensive commercial usage of gas”. In these
days of dynamic private enterprise, when the planning commission has become
toothless and useless, this idea of having a perspective plan for gas sounds
incongruous. The whole idea seems to build uneconomic pipelines to remote
places which will use little gas – and which will need cross-subsidization.
That will mean overcharging the consumers close to the sources of gas; the
regulator will become the arbiter of this tax-and-subsidy regime. And since
subsidies invariably have a political colour, he will have to keep running to
the petroleum minister.
The cross-subsidies will be not
only from profitable to profitless consumers; they will be from profitable to
loss-making pipelines. And private pipeline owners may object to their profits
being taken away to subsidize consumers to Jaisalmer or Manali. It is best to
eliminate such trouble-makers. So the new policy announces that gas transport
will become a monopoly of the ministry’s own daughter, the Gas Authority of
India (GAIL). That is the none-too-secret core of this gas policy – it is
designed to reserve a fat business opportunity for GAIL, and to exclude private
gas transporters.
It is obvious whose brain is
behind this policy; one can almost see the gears of the petroleum minister’s
mind cranking away. From the jubilation at Supreme Court’s sabotage of oil
company privatization to assuring that the government gas company gets a
monopoly, there is a unity of principle. The minister enjoys power, and will do
anything to ward off threats to its dilution.
At the moment, the policy’s prime
victim will be Reliance. It has discovered abundant gas off the east coast
which it may want to transport to the west coast; if this policy is
implemented, Reliance will have to pay GAIL a fat fee. It is not the only
target; a number of companies, including BG, would like to land LNG in Gujarat
and carry it south and east. Ram Naik has neatly sabotaged their plans.
But apart from power politics,
there are economic arguments against freezing gas development in the hands of a
regulator and GAIL. India is surrounded by sources of gas – Iran, Kuwait, UAE,
Indonesia, Bangladesh to name just a few. More gas will also be discovered
offshore. It can be landed at many ports, and other, specialized ports can be
created. Left to themselves, entrepreneurs will land gas at many points and
transport it to consumption points inland. Coal is found chiefly in the
Gondwana hills; it will find a market close by in the east and north-east. The
distances gas has to travel to the north will be longer, and it will cost a bit
more there. But the country will be covered with a network of pipelines in
10-15 years anyway; Ram Naik does not have to lift a finger to ensure it.
There is an argument for imposing
a common carrier obligation. If pipeline layers build in some surplus capacity,
there will have to be less digging and disruption, and some operators will be
able to market gas without building their own pipelines. But beyond this, gas
development needs no help from the petroleum ministry. Neither from Ram Naik nor
from GAIL. Let competition prevail.
