No more monopolies

BS OPINION

So, if Indian Oil is building a pipeline from Delhi to Mumbai, under the new policy it will have to make a public announcement of its intention, and within a certain period of time, usually 90 days, others are expected to state their interests as well.

So, for instance, Reliance can say it is interested in transporting its products through the pipeline as well, and then state how much capacity is required.

Indian Oil then builds its pipeline to provide for Reliance's needs as well, and Reliance pays for using this pipeline on the basis of what a regulator decides. The contracts are made on a take-or-pay basis, which means Indian Oil will get its money regardless of whether Reliance uses the pipeline or not.

It seems fair and sensible, and the principle is already applied in the case of other natural monopolies as well. In the electricity sector, for instance, power producers are free to use someone else's transmission lines to transport their power to customers, in return for a fee decided by the power regulator.

And now that a host of players, both private sector as well as quasi-public sector ones like Petronet LNG, are planning an entry into the natural gas market, it is important that this principle be established at the earliest, in order to prevent duplication of expensive assets, and/or a monopolisation of these by various players.

This policy, by the way, applies only to pipelines longer than 100 km, and not to smaller pipelines set up to cater to the demands of individual customers.

But there is a fly in the ointment. For the fact is that the policy, still only in its draft stage, nominates the Gas Authority of India Limited (GAIL) as the monopoly builder of these pipelines. It does not take great intelligence to argue that this is a serious flaw.

More so at a time when the emphasis is on breaking up, or at least controlling, monopolies by introducing more competition wherever possible. In any case, once you have a common carrier principle, and a regulator to enforce it, there is no earthly reason why anyone should be granted a monopoly on a substantial business where many other companies will have a legitimate stake.

It is true that the pricing of services in natural monopolies is a tricky business. Price the service too high, especially for carrying someone else's gas, and you'll kill the market. Price it too low, and all companies will be tempted to piggy-back on pipelines built by others, which will ensure that no one builds this vital piece of infrastructure.

Even so, creating a monopoly is no solution; indeed, this is precisely the reason why there should be more than one player, because there is the possibility that someone else may build a pipeline at lower cost than Gail.

Besides, even in the case of two pipelines proposed by Reliance, which is emerging as a major energy player, the government has said these will be subject to the common carrier priniciple and will be loosely co-ordinated by GAIL. Surely, this is a better solution than the one proposed by the draft policy.