The Indian government is likely to split national gas infrastructure and marketing major GAIL India into separate entities, with one controlling pipeline construction and operation and the other natural gas marketing. The proposal comes in the wake of the Indian government moving ahead to set up a gas trading hub or exchange. GAIL’s pipeline construction and operation business will be treated as a ‘public utility’ offering open access to all gas marketing entities participating in the gas exchange.
Alongside, the gas marketing operations of GAIL will need to be kept at an ‘arms length’ to its pipeline operations to ensure “transparent and open competition among gas marketing entities and avoid unfair restrictive practices that can arise from an infrastructure provider being a participant in gas trading and marketing”, officials have said. GAIL, which operates a gas pipeline network of 11 000 km and is adding another 2 655 km in phases, nets about 71% of its total revenues from gas marketing, which accounts for 28% of its yearly net profit.
The Petroleum and Natural Gas Ministry has referred the issue of splitting GAIL to industry regulator Petroleum and Natural Gas Regulatory Board (PNGRB) to resolve possible conflicts of interest in its being an infrastructure provider, as well as a marketing agency, by unbundling the business portfolios of GAIL. It was pointed out that the unbundling would actually be going back to the original avatar of GAIL, which was set up in 1984 by hiving off business of national oil and gas exploration and production major, ONGC Limited, which had been carrying out business of gas transportation alongside its main operations of exploration and production.
As reported by Mining Weekly Online previously, the government is aiming to set up a gas trading hub or exchange before current year-end. PNGRB is seeking a consultant to help frame regulatory mechanism for such a price discovery agency. Officials said that without prejudice to the final recommendations of the consultants and the final contours of the regulatory framework, it was logical that separation of access to infrastructure and marketing functions, with trading agencies getting open access to infrastructure, would be a prerequisite to the regulatory framework.
“The ownership of both transportation and marketing networks by an entity leads to conflict of interest. This is not in the interest of consumers or suppliers. Which is why unbundling is needed,” PNRGB chairperson D K Saraf said in a statement. “Setting up of a gas trading hub will be the trigger for such open access, as well as unbundling,” he added.