Companies to get monopoly for gas distribution in cities

In a major setback to Reliance Industries, the government has decided to allow companies monopoly in city gas distribution projects for sale of natural gas to households and for automobiles.

"City gas distribution projects will have marketing exclusivity. A company or consortia granted this licence for a particular city will have marketing exclusivity for a certain number of years," a petroleum ministry official said.

Reliance, which plans to enter the city gas distribution business by 2008, had demanded that no marketing exclusivity should be allowed in consumer interest.

The official said the period of exclusivity would depend upon the investment made by the companies in these projects and would be determined by the regulator, which was likely to be in place before the end of the financial year

RIL's demand was supported by the Planning Commission but state oil firms and global energy majors British Gas (BG) and British Petroleum (BP) had demanded exclusivity.

"A majority of countries the world over give exclusivity to city gas distribution projects," the official said.

Industry sources said Reliance wanted to use the vast natural gas reserves found in its D6 block in Krishna Godavari basin for city gas distribution networks across major cities, the majority of which already have or would shortly have a city gas retailer.

There was also a demand to declare existing city gas distribution networks, including pipelines in Delhi and Mumbai, as common carriers so as to allow new entrants access to them.

The official said the ministry accepted the views of BG and BP that the marketing exclusivity period should be commensurate with the level of investment and the network coverage required in a city, adding that this would help the development of the city gas distribution network and ensure proper returns.

Incidentally, the Anil Ambani Group, too, had echoed the views of Mukesh Ambani's Reliance Industries.

The Anil Ambani Group had also applied for licences for Delhi and Mumbai, cities which already boast of a well-established city gas distribution network.

Indraprastha Gas Ltd, a joint venture of GAIL and BPCL, operates the Delhi city gas distribution while Mahanagar Gas Ltd, a joint venture of BG and GAIL, runs a network in Mumbai.

The official said marketing exclusivity was required considering that the current average gas consumption in Indian households was very low and the city gas distribution system could not survive on regulated tariffs alone. Exclusivity was a measure of assurance to city gas operators to increase their coverage of residential and other low load factor customers, he said.

Load factors in India are likely to be lower than in western countries; therefore, exclusive access as an assurance to developers of city networks was necessary, he added.

BP, BG and state-run firms like Indian Oil Corp (IOC), Bharat Petroleum and GAIL wanted marketing exclusivity for at least five to seven years to encourage investment in city gas distribution networks and ensure reasonable returns.

International experience in around 25 countries suggests that city gas entities were allowed exclusivity for particular geographical areas for periods ranging between 20-25 years.