The Hindu Business Line : Monopoly in the pipeline

Monopoly can be dangerous, and the Government may willy-nilly be creating just that in the business of city gas distribution. The Policy for Development of Natural Gas Pipelines and City or Local Natural Gas Distribution Networks, announced last week, has, in an effort to bridge the divide between those clamouring for a free market and those lobbying for protection, come up with the concept of a limited period "marketing exclusivity". Simply put, this means the company that gets the mandate to develop a gas distribution network in a city would enjoy a period when it would remain the sole retailer of natural gas. The period would range between three and five years depending on such parameters as the city's population, location and the investment by the company. The unsaid part is that at the end of this period of "marketing exclusivity", the field will be thrown open.

The important point though is that by the end of this period of exclusivity, the incumbent may present so imposing an entry barrier as to prevent others from even considering the market. Unlike other services such as telecom, the pipeline gas business involves high capital investment in laying pipelines across the city/town and into residential neighbourhoods. This also involves securing a number of right-of-way clearances from the local authorities that can make it cumbersome for a second player after one has already established itself. To get around this, the policy states that at least 33 per cent extra capacity be built into the pipeline infrastructure by the first operator for use by any other player on a non-discriminatory basis. This may still not solve the problem because the growth of the second player will be limited to the surplus capacity available. With multiple players, it will be worse still. In short, it will be effective monopoly for the first entrant.

This paper has always argued for a well-regulated, free market in the oil and gas sector and believes that principle should be applied in the instant case as well. The city gas business is poised to become a major industry going by the many gas finds on the eastern seaboard and it is best left open for any player with the resources and the expertise. All that is required is a calm and strong regulatory hand to ensure orderly development and to keep out fly-by-night operators. We have seen what competition can do in the telecom sector and there is no reason why the model should not be replicated in the city gas business, even after accounting for the basic differences between the two services.

More Stories on : Editorial | Infrastructure | Petroleum

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Conserving Kolkata's heritage

Monopoly in the pipeline

Nothing conventional about globalisation

Revisiting the debate on fiscal purity

Should colour of money matter?

`Growth of cargo from hinterland has been encouraging'

Making safe the supply chain

Crisis in higher education

There Is Always An Alternative

Nuclear power