Gas Policy Needs Fine-tuning

The Economic Times, New Delhi


THE policy for natural gas pipelines (NGP) and city gas distribution (CGD) networks appears unexceptionable on broad principles, but seems to be on a weak wicket when it comes to the fine print. The guidelines call for stepping up of investments, and on facilitating open access and competition in the consumer interest. What is mandated is that pipeline capacity be designed so as to facilitate open access to the gas grid on common carrier basis.

Also, the norms specifically call for an �arm�s length relationship� between cross-country gas transportation and CGD to deter �abuse of market power.� In fact, what is envisaged is that �in the long run,� entities authorised for gas transportation �will not have any business interests in gas marketing or CGD�. This looks rather draconian, outright ruling out possible synergy. Besides, when it comes to crucial matters of pricing, there seems much scope for fuzziness, perhaps even regulatory arbitrariness.

For one, a policy on gas transportation and distribution tariffs has not been outlined. It has been left to the Petroleum & Natural Gas Regulatory Board (NGR) to decide on the �manner of determining such tariffs�. But the NGR Act is itself not very clear-cut and forthcoming on the regulator�s powers to decide on tariffs for gas distribution.

The Act merely says that NGR is to regulate �transportation rates� for common carrier pipelines. What is left open ended is the regulatory process of determining such rates, on whether for instance competitive bids or other modes of price discovery would be initiated. More important, overall gas tariffs seem quite beyond the regulator�s purview.

An extensive pipeline and distribution network is required to bring gas from wellhead and terminals to consumer homes and retail outlets. Already, the petroleum ministry has projected an investment requirement of Rs 40,000 crore for the gas sector in the next five years. With the real possibility of domestic gas availability almost tripling to 192 mmscmd by 2011-12, when is surely needed is proactive policy and sound ground rules for proper market design. Instead, the pipeline policy seems to have much scope for discretion and regulatory opacity.