No more monopolies

The proposal that all city gas distribution, such as by Indraprastha Gas in Delhi and Mahanagar Gas in Mumbai, should be given exclusive marketing rights, and that these be bid for, might appear to be reasonable.

After all, a competitive bid will ensure the best price for consumers, provided of course that the bid is well designed.

For instance, if the bid is to decide which company will supply gas at the lowest price to city consumers, the chances of getting a good deal for consumers is better than a situation in which the bid is to decide which company will provide the largest revenue share to the government.

A monopoly will also ensure there’s no duplication of costs, as can happen if too many firms decide to replicate the pipeline infrastructure.

The lure of profits from an assured market will ensure that the pipeline gets built and, most important, a regulator will ensure that the scope for earning super-profits is minimised.

This would mean, for instance, that the 20 per cent profit level that Indraprastha Gas enjoyed last year will no longer be possible.

That’s the theory, but the reality can be quite different as the power distribution reform experiment in Delhi shows.

The private distribution companies that have won contracts enjoy monopoly rights over their respective areas in Delhi, and there is a regulator in place.

But power costs for consumers keep going up, and the inefficiencies of one company (when compared with the superior performance of another) are paid for by consumers and not the company.

In contrast, there is the case of telecom, where there is fierce competition, and tariffs have gone down ever since the sector was opened up.

In other states, where electricity regulators continue to dither over allowing consumers a choice of supplier through what’s called “open access”, the result is the same: an increase in tariff levels.

Besides, now that there is enough experience with the separation of carriage from content, there is no reason why multiple players cannot be allowed to supply gas to city homes, through the same pipeline, with a regulator ensuring that each has equal access to the consumer’s premises through the pipeline.

But who will build the pipeline if there are going to be no monopoly profits from the deal? That’s where the regulator comes in—his job is to fix the tariff for those using the pipeline in such a manner that it is attractive enough for a firm to come forward with a bid to build and operate the pipeline.

Once this is done, any number of potential gas suppliers will pay a fixed user-fee to the pipeline company and will bid for the customer’s custom after that.

Indeed, one of the proposals being discussed in relation to an all-India grid of gas pipelines to be operated by Gail is that Gail will give up its current role of buying and selling gas as well, and will become just a pipeline operator.

Clearly if a company is buying and distributing the gas, apart from owning the pipeline, it is going to ensure its competitors don’t get the same access to the pipeline.

Regulators the world over are experimenting with new ways to increase competition, so it’s ironic that India is moving in the opposite direction.