Gail monopoly to go, Reliance to gain

Petroleum ministry likely to announce gas pipeline policy this month

The government is likely to drop Gail as the monopoly builder of trunk gas pipelines in the country and as part of opening up the sector, might allow Reliance Industries to lay a line from Andhra Pradesh to Gujarat.x

Reliance will get the rights to lay the 1,400-km pipeline from Kakinada in Andhra Pradesh to Ahmedabad in Gujarat, via Hyderabad and Uran in Maharashtra, to transport natural gas from its gigantic gas field in Bay of Bengal to NTPC's Kawas and Gandhar power projects in Gujarat.

Official sources said the petroleum ministry was likely to announce the final gas pipeline policy this month, wherein laying inter-state pipeline would be open for competition and anyone offering "the least terms of transportation tariff" and "most efficient means of operations" would get the contract. All pipelines, laid on common carrier principle, should have at least 25 per cent more capacity than what is required by the owner for leasing to the third party users.

In September 2003, a draft gas pipeline policy nominated Gail as the sole transporter, but the industry saw it as a conflict of interest with Gail also involved in gas production and trading. They feared that a monopoly status would give Gail the power to arbitrarily fix tariffs, although a regulatory body would monitor price movements.

Basing its arguments on the draft policy, Gail had claimed the right to lay the Kakinada-Ahmedabad pipeline. Sources said the government was contractually bound to allow Reliance to lay a pipeline to market produce from the D6 block it won through the competitive bidding.

According to the revised gas pipeline policy""drafted after eliciting suggestions from 38 stakeholders, including state governments, companies and chambers of commerce""a pipeline network will only be handed over to Gail, if the government feels necessary to do so to ensure appropriate grid connectivity.

Sources said Reliance Chairman Mukesh D Ambani had last month met Petroleum Minister Mani Shankar Aiyar to impress upon him that Kakinada-Ahmedabad pipeline was crucial for the company to fulfill the contract it had won from NTPC for supply of gas for 17 years at a delivered price of $2.97 per million British thermal unit (MBTU).

Later on July 27, he wrote to the minister saying Reliance was in discussion with Gail on laying the pipeline, but talks broke down "due to lack of transparency and competitiveness" at Gail's end.

Ambani said "we have proposed to lay this pipeline in a separate subsidiary to comply with all the norms laid down by the proposed regulatory authority and abide by common carrier principles."

Gas Transportation and Infrastructure Company Ltd (GTCL), a subsidiary of Reliance, is the first company to have sought approval for the pipeline project in 2001-02, much prior to the announcement of the draft pipeline policy. GTICL wanted to build Kakinada-Hyderabad-Uran-Ahmedabad gas pipelines originating from Jamnagar to connect the proposed regassification terminal at Jamnagar, RIL's block in Saurashtra and Kutch region, and its east coast blocks, they said.

To checkmate Reliance, Gail had offered NTPC to transport D6 gas at $0.39 per MBTU, lower than $0.48 per MBTU tariff quoted by Reliance in its winning bid for Kawas and Gandhar gas contract. NTPC, however, ignored Gail's offer as Reliance quotation met its condition of securing supplies at the plant at less than $3 per MBTU.

Sources said Reliance has told the ministry that Gail's indicated tariff for transportation of gas was excessive and not competitive.

GTICL tariff will be 25 to 30 per cent less than Gail's indicated tariff and they will be able to bring gas from east coast to Dadri in western Uttar Pradesh, where Reliance is setting up a 3740 Mw power plant, in less than $1 per MBTU. It said GTICL had already obtained right of use for Jamnagar-Bhopal, Goa-Hyderabad, Hyderabad-Kakinada and 76 per cent on Hyderabad-Uran-Ahmedabad section, they said.

Reliance offered NTPC gas from Krishna Godavari basin at $2.70 per MBTU plus $0.48 per MBTU for piping the gas from Kakinada to Gujarat. A 4 per cent central sales tax ($0.9 per MBTU) takes the Dhirubhai gas price to $3.27 per MBTU on net heating value basis. On gas heating value basis, it costs $2.97 per MBTU.

As per the plans, RIL will construct a pipeline from Kakinada to Hyderabad. From Hyderabad the pipeline will travel to Goa and than to Uran in Maharashtra. An offshoot at Hyderabad would carry gas to Dadri, sources said.