Dharmendra Pradhan bats for splitting GAIL, new gas tariff policy

Plan is to unbundle GAIL into two firms --- one for gas transmission, other for marketing; Ernst and Young appointed consultant

Union Petroleum Minister Dharmendra Pradhan on Monday said the ministry was considering the bifurcation of GAIL, a step towards bringing transparency to India’s gas market.
 
He also batted for a market-driven pricing mechanism by introducing a new tariff policy for natural gas soon.
 
The government is planning to unbundle GAIL into two companies for gas transmission and marketing business. The state-run company has entrusted Ernst &Young as a consultant.
 
“There were concerns that how can a pipeline company be a trader. GSIL India has requested for dividing the company into two verticals, one of which will focus on just gas transmission. That can address market concerns that a gas marketing company can't be a key transmission services provider, too,” Pradhan said, launching the country’s first natural gas exchange, Indian Gas Exchange (IGX).

 
The ministry of petroleum and natural gas is likely to seek the approval of Union Cabinet for the unbundling of GAIL. In addition, the government is yet to take a final call on whether nomination gas will be part of the gas hub. If nomination gas sold at a lower rate is brought into this trading hub, it will be a huge boost for the producers like ONGC and Oil India.
 
The minister said the new gas exchange would be a step towards market-driven pricing mechanism.
 
“IGX will create more transparency and will play the role of a mediator between the buyer and the seller. Moreover, there will be a market-driven pricing mechanism, the biggest indicator of our progressive policy. The government is moving towards a market-driven price formula,” Pradhan said.
 
The government has laid a road map of increasing the share of natural gas in the country’s energy basket to 15 per cent by 2030, from the current 6.2 per cent. Pradhan indicated that to move towards this, the government would soon come out with a new tariff policy. “The government and the regulator are working to have a progressive and pro-business tariff policy soon,” he said.

IGX, set up by the Indian Energy Exchange (IEX), will offer the option of both just buying the product as well as purchase along with delivery. The company said that 12 members and over 350 consumers are on board for its operations. IGX would offer spot and forward contracts at Dahej, Hazira, and Kakinada.

 
“IGX will play an important role in achieving the next-generation energy infrastructure in India. IGX is a step towards a free and open market, and PNGRB will only be a custodian of the rulebook in the sector,” he added.
 
Under the Petroleum and Natural Gas Regulatory Board Act of 2006, marketing and transmission functions should not be performed by the same entity. The purpose was to prevent conflict of interest since companies like GAIL are in a position to push their gas on priority since as a transmission company it also operates pipelines. Though GAIL did not spin off its marketing business, it decided to split its business and accounts into marketing and transmission businesses.
 
Last year, Pradhan had said the primary job of GAIL was to lay gas infrastructure in the country, while marketing can be “done by anyone”.