Monopoly fear might kill nascent gas retail business

Vol 13, PW 3 (16 Jul 09) People & Policy

Monopoly in the market place, especially by a state-owned company, has long gone out of fashion.

But not, it seems, in India’s nascent gas retail business, where GAIL subsidiary GAIL Gas is fast emerging as the â€کbأھte noir’ of private sector rivals. Later this month, GAIL Gas will figure among eight companies waiting for the gas regulator to announce winners in an open auction for the licence to sell CNG and piped gas in eight small to medium-sized towns and cities across India: Jhansi, Allahabad and Ghaziabad in Uttar Pradesh, Rajahmundry and Yanam in Andhra Pradesh, Shadol in Madhya Pradesh and Chandigarh in Punjab.

No one can deny the process has been transparent; the Petroleum & Natural Gas Regulatory Board is fast emerging as one of the most non-secretive and open bodies in the oil and gas industry. But in private, at least two private sector bidders tell us they fear GAIL Gas will walk away with all the licences it bid for, as with the last auction, where it won four of five cities.

Blame this, they say, on the decision to make â€کnetwork tariff’ (the price charged to a consumer for use of the gas pipeline network) a â€کbiddable’ item, but â€کmarketing margin’ (the profit margin charged by the supplier to the end-user) a â€کnon-biddable’ item. “In the last auction, GAIL Gas bid ridiculously low â€کnetwork tariffs’ to win four cities,â€‌ says a worried bidder.

“But it made up for this with high â€کmarketing margins’, which are now completely unregulated.â€‌ Unless there is a radical overhaul of this key bidding parameter, they add, India’s emerging city gas distribution business will be reduced to a near monopoly of state-owned companies such as GAIL Gas.

“The regulator’s objective of protecting consumer interests is defeated by the complete lack of oversight on the final price charged to the consumer,â€‌ adds a source. When the regulator announces the third auction for ten cities in a few weeks from now operators will be hoping â€کmarketing margin’ like â€کnetwork tariff’ is a â€کbiddable’ item.