Financial Daily from THE HINDU group of publications
Tuesday, Mar 28, 2006
Industry & Economy
No urgency to bifurcate GAIL's biz: Ministry
To GAIL's advantage
The Bill to set up oil regulatory board in its present form does not mandate GAIL to separate its two business.
Unbundling of business would be in the greater interest of development of competitive gas industry.
New Delhi , March 27
The Ministry of Petroleum and Natural Gas is of the view that there is no urgency to bifurcate the gas marketing and transportation business of GAIL (India) Ltd.
With the decks having been cleared for the setting up of a Petroleum and Natural Gas Regulatory Board (PNGRB) a decision on bifurcating the marketing and transportation business was also expected to gather momentum. A senior Petroleum Ministry official, however, told Business Line that it would not be an upfront decision that would require GAIL to bifurcate the business as soon as the Board is put in place.
A final call on whether GAIL needs to separate its gas trading business from gas transmission activities would be taken at a later stage, he said. The Bill to set up PNGRB in its present form does not mandate GAIL to separate its two business. However, the Bill which has got Parliamentary nod, will lay down the provisions for an affiliate code of conduct, he said, adding that this would in effect mean that GAIL may not enjoy a monopolistic situation in the business. While the Bill would only lay down the provision for an affiliate code of conduct, the proposed Board would prescribe the mechanism to be followed by the entities in the business, he said.
Currently, GAIL is undertaking both gas marketing as well as transmission activities. A need was felt that as the gas market moves towards maturity, GAIL would be required to separate its gas trading business from transmission activities. Such unbundling of business would be in the greater interest of development of competitive gas industry. The unbundling pattern would also need mandatory approvals before its implementation, the official said. This move is in keeping with industry demand of good practices, so that there was no conflict of interest. At present, GAIL is a supplier as well as a consumer.
Incidentally, in anticipation of such a move once the Regulatory Board comes into existence, GAIL has already started maintaining separate accounts for its gas transmission and trading business.
According to a senior GAIL official, with the existing demand potential for natural gas and expectations of growth in supplies from both domestic and international sources, there is a need to develop gas infrastructure in the country, which requires substantial investments. The passage of the Bill to set up regulator is an important development, he said.
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