No monopoly, please

The petroleum and telecom ministries want to create huge public sector behemoths through mergers so as to improve their competitive abilities. Long-suffering consumers can be forgiven for thinking that this is actually an attempt to stifle competition by rebuilding old monopolies. Luckily for them, the Planning Commission seems to be on their side""if its suggestions on the gas sector are any guide.

The Commission has opposed the NDA government's decision to make Gas Authority of India Ltd (Gail) the sole agency for implementing the proposed National Gas Grid on the grounds that it would create a monopolistic situation. Three cheers for that.

Since the deputy chairman of the Commission is known to have the Prime Minister's ear, the chances of his getting heard are fairly good.

The government's new-found enthusiasm for mergers makes for bad economics and bad politics. Monopolies usually result in higher costs for consumers and end up delivering huge monopoly profits for the favoured few and/or inefficient operations.

The high profits earned by the country's oil majors, which till recently received a 60""70 per cent effective duty protection, are an example of the former.

Another, more recent, example is telecom. ISD and STD rates have fallen, in some cases to a tenth of previous levels, once the cosy PSU monopolies were broken and genuine competition allowed in.

The fact that Coal India's products are more expensive than imported coal whenever they have to be transported beyond 300 km by rail is an example of the cost inefficiency inherent in monopolies.

Another visible example is the containers spilling out of India's ports because monopoly mover Concor (Container Corporation) doesn't have enough wagons to transport export""import cargo quickly, causing delays of a week to 10 days in most ports.

Coming back to gas, instead of encouraging Gail to become a monopoly, the government needs to do two things. One, free up the sector so that pipelines can be built and operated at the lowest possible cost.

But since pipelines, like electricity lines, lend themselves to becoming natural monopolies, we need an independent regulator to ensure this doesn't happen. Under the "common carrier principle" it does not matter who builds or owns a pipeline.

Every other company also gets a legally enforceable right to carry its products through the same pipeline. So, let's, say, Reliance is interested in building a pipeline from point A to B.

The company will then advertise this fact publicly. Other companies will then indicate if they are interested in using this, and once they've indicated their demand, Reliance can build a larger pipeline if need be.

The user-charges will then be fixed by the regulator in such a way as to ensure that Reliance gets a fair return, but will still be low enough to make it worthwhile for others to use the pipeline. None of this, needless to say, is new.

It's been tried out with great success in the electricity business in most developed nations, and has resulted in a significant drop in tariff levels. The benefits of the Planning Commission's recommendations are obvious. They need to be implemented.