Cross subsidisation is bad for pipeline construction

Vol 7, PW 17 (05 Nov 03) People & Policy

Shell is scathing of ministry plans for a national gas pipeline network and sees it as another move to cement monopoly status for GAIL.

"A pre-ordained network plan driven by cross-subsidising marginal routes from profits on trunk routes will neither serve the interests of marginal customers nor that of loyal customers in the long run." Drawing on its experience with gas pipeline markets globally, Shell asserts: "The rationale for creating a national transport monopoly to service marginal customers has not held the test of time in any sector." The sustainable, market-friendly way to put a network in place is by offering, "fiscal incentives and low cost infrastructure funds". Only this, stresses Shell, "should drive the network to areas where service is desired by the regulator for the public good." Says Shell: "The delivery of natural gas entails inherently higher development costs than other fuels." In such a scenario, "network plans are of limited value given the range and dynamic of natural gas market determinants." If the idea behind ministry plans for a long-term national network is to protect the public good, "there are sufficient government agencies which undertake environmental approvals or guide land allocations" to ensure this.

"There is no need for the regulator to approve new gas pipelines in the context of a long-term plan." Shell believes, "market forces, guided by regulation that proportions reward to risk in different segments of the natural gas value chain, and recognises regions of different risk denomination, will assure rapid network growth." To Shell, any regulation of gas pipelines should be, "based upon a commercially sustainable model with fiscal intervention to guide route-plays; rather than on a network that relies heavily on (GAIL's) cross-subsidies or on the directed credit mechanism of central plan funding."