Division of Labour: Govt to unbundle gas companies
To avoid a monopolistic situation in natural gas production, transportation and marketing activities, the government is considering unbundling gas companies.
By Piyush Pandey, TNN |
The time has come for gas majors like GAIL India, Reliance Industries British Gas, Gujarat State Petroleum Corporation (GSPC) and Reliance Natural Resources (RNRL) to separate their gas marketing business from gas transmission activities.
The recently-constituted Petroleum & Natural Gas Regulatory Board (PNGRB) has suggested the unbundling of transportation and marketing activities of a gas company planning to lay pipelines.
The proposed move may force integrated companies like GAIL, RIL, BG India, GSPC and RNRL to bifurcate their marketing and transportation business.
The PNGRB Act as well as government policy envisages regulatory intervention at an appropriate stage for unbundling transportation and marketing activities of an entity. With PNGRB starting functioning, a decision on bifurcating the marketing and transportation business is expected to gather momentum.
In a letter to the petroleum ministry, PNGRB secretary Ajay Tyagi wrote, “Considering that the present scenario in the country is likely to result in monopolistic structure, controlling the whole value chain from gas production to city gas distribution, perhaps it may be desirable to consider unbundling at this stage itself.”
As regards unbundling of operations, the policy states that any entity desirous of applying for building, operating or expanding common or contract carrier gas pipelines will have to give an undertaking that if it has business interests in related areas of gas marketing or city or local gas distribution network or has a related entity under the same management, joint venture, and so on, it will ensure an arm’s length relationship between the two entities.
As part of the unbundling excise, Reliance Gas Transportation Infrastructure (RGTIL), the erstwhile subsidiary of RIL engaged in laying the 1,400 km East-West pipeline, has already ceased to be a subsidiary of RIL and the stake of this company has been transferred to the promoters. This is to ensure an arm’s length relationship between the two.
Till such unbundling takes place, an affiliate code of conduct has been suggested between the related entities engaged in transportation and marketing by PNGRB. The board would prescribe the mechanism to be followed by the entities in the business.
Government’s unbundling decision may have a major impact on state-owned GAIL, which currently undertakes both gas marketing as well as transmission activities.
A petroleum ministry source told ET, “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.”
However, industry sources believe that bundled activities would have incentivise infrastructure creation and the creation of some bare minimum pipeline network in the country may precede unbundling.
In anticipation of unbundling operations, GAIL has already started maintaining separate accounts for its gas transmission and trading business. Similarly, RNRL’s affiliate has sought government’s approval for laying 1,600 km pipeline from Kakinada to Dadri in UP. British Gas and GSPC are also thinking in these lines.
Sources in PNGRB said, unbundling may not be applied to the city gas distribution (CGD) operations during the exclusivity period.
The recently-constituted Petroleum & Natural Gas Regulatory Board (PNGRB) has suggested the unbundling of transportation and marketing activities of a gas company planning to lay pipelines.
The proposed move may force integrated companies like GAIL, RIL, BG India, GSPC and RNRL to bifurcate their marketing and transportation business.
The PNGRB Act as well as government policy envisages regulatory intervention at an appropriate stage for unbundling transportation and marketing activities of an entity. With PNGRB starting functioning, a decision on bifurcating the marketing and transportation business is expected to gather momentum.
In a letter to the petroleum ministry, PNGRB secretary Ajay Tyagi wrote, “Considering that the present scenario in the country is likely to result in monopolistic structure, controlling the whole value chain from gas production to city gas distribution, perhaps it may be desirable to consider unbundling at this stage itself.”
As regards unbundling of operations, the policy states that any entity desirous of applying for building, operating or expanding common or contract carrier gas pipelines will have to give an undertaking that if it has business interests in related areas of gas marketing or city or local gas distribution network or has a related entity under the same management, joint venture, and so on, it will ensure an arm’s length relationship between the two entities.
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As part of the unbundling excise, Reliance Gas Transportation Infrastructure (RGTIL), the erstwhile subsidiary of RIL engaged in laying the 1,400 km East-West pipeline, has already ceased to be a subsidiary of RIL and the stake of this company has been transferred to the promoters. This is to ensure an arm’s length relationship between the two.
Till such unbundling takes place, an affiliate code of conduct has been suggested between the related entities engaged in transportation and marketing by PNGRB. The board would prescribe the mechanism to be followed by the entities in the business.
Government’s unbundling decision may have a major impact on state-owned GAIL, which currently undertakes both gas marketing as well as transmission activities.
A petroleum ministry source told ET, “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.”
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However, industry sources believe that bundled activities would have incentivise infrastructure creation and the creation of some bare minimum pipeline network in the country may precede unbundling.
In anticipation of unbundling operations, GAIL has already started maintaining separate accounts for its gas transmission and trading business. Similarly, RNRL’s affiliate has sought government’s approval for laying 1,600 km pipeline from Kakinada to Dadri in UP. British Gas and GSPC are also thinking in these lines.
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Sources in PNGRB said, unbundling may not be applied to the city gas distribution (CGD) operations during the exclusivity period.
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