KOLKATA (miningweekly.com) – State-run natural gas logistics and marketing major GAIL India will start hiring capacity on its vast pipeline network to third-party gas transporters in a bid to prevent government’s plans to break up the company.

Under the new business plan, GAIL will offer common carriers the option of hiring capacity on its pipeline network based on firm volume commitments by any gas transporter. Capacities could be booked online through a specific company-owned portal, sources have said.

The new model is in response to several industry players complaining that GAIL is leveraging its position as the monopoly natural gas logistics and transport provider and denying open access to its pipeline network as it is intent on protecting its own revenue streams from gas transportation, the sources added.

Early this year, the Petroleum and Natural Gas Ministry said that all agencies authorised to lay gas pipelines, including GAIL, will have to provide mandatory open access to its pipeline network infrastructure as common carrier principle, on a non-discriminatory basis at transportation rates to be approved by the industry regulator.

The Ministry also noted that open access to all gas pipelines across the country would need to be a prerequisite to plans of creating an Indian version of a gas trading hub along the lines of Henry Hub, in the US, the National Balancing Pointed UK or the one proposed in China.

In a meeting with industry stakeholders on setting up an Indian gas trading hub, a couple of months ago, international majors like Royal Dutch Shell and BP communicated to the Ministry that operations of Indian gas companies would need to “unbundle" their marketing and transportation businesses to ensure that all other natural gas shippers and traders get open access to distributions channels, indicating that GAIL’s monopoly over marketing and pipeline would prevent a level playing field for setting up of a trading hub.

In response to such feedback from the industry, the Ministry a few months ago proposed that GAIL be split up into two separate entities for its gas marketing and pipeline businesses and ensure “firewalls” between the two and avoid conflict of interest in GAIL.

However, GAIL management and top level executives strongly opposed any move to break up the company following which the Indian government put the proposal on the backburner, but on condition that GAIL was able to find a mechanism to avoid conflicts of interest inherent in dual operations of gas marketing and distribution.

Opening up a window to hire out its pipeline network to third parties was seen as putting in play such a mechanism to avoid breaking up the group.

However, no indication was available on the proposal to create a holding company structure to separate GAIL’s marketing and distributions businesses.

Adopting a structure similar to Coal India Limited (CIL), entailing a holding company of two separate operational marketing and distribution entities with independent management controls, had been one of the alternative models mooted by GAIL management.

GAIL operates the entire 11 400 km of pipeline network in the country and although the government has permitted private companies to construct their own network no such investments have fructified over the past decade, maintaining GAIL’s distribution monopoly.