GAIL biggest loser under proposed pipeline regime

Vol 6, PW 15 (25 Sep 02) Midstream & Downstream

GAIL WILL BE the single biggest loser if the McKinsey-Shastri Bhawan pipeline proposal becomes law.

It recommends GAIL be stripped of its monopoly position over gas pipelines and see a clear conflict of interest between its role as transporter, buyer and seller of gas. It also sees a conflict of interest in GAIL's role as gas consumer for its petrochemicals business.

McKinsey and Shastri Bhawan argue that infrastructure creation will suffer if GAIL is allowed to remain a gas pipeline monopoly with its other gas-related businesses. "Pipeline development will need to depend on the building efficiency of GAIL," argues the McKinsey-Shastri Bhawan report.

"As a result there is the high risk of upstream as well as LNG projects being held up for lack of pipelines. In turn this will lead to litigation." Equally important, argues the report, is GAIL's doubtful ability to raise the kind of investments needed for gas pipelines.

The report wants GAIL to continue performing its present role of transporter, buyer, seller and end user, but under regulatory supervision, "including mandatory non-discriminatory access to its pipelines if capacity is available". As for new pipelines, the report argues: "Any gas industry player should be allowed to lay gas pipelines." Yet McKinsey and Shastri Bhawan are not advocating complete freedom.

They want to see a "strong and skilled regulator with financial, legal and industry experience" to closely "monitor the construction of new pipelines to avoid over investments, to whet cost and capacity estimates and to identify and stop any potential abuse of monopoly power." Such a regime, argues McKinsey-Shastri Bhawan, will attract maximum investment into the gas pipeline sector.