Oil Ministry Asks Regulator To Resolve Conflict Of Interest In GAIL

The oil ministry has asked sector regulator PNGRB to look at unbundling of companies like GAIL India Ltd. to resolve the conflict of interest in being both the transporter and marketer of natural gas.

The reference to the Petroleum and Natural Gas Regulatory Board follows a revival of a plan to split GAIL by hiving off gas marketing business into a separate firm, leaving just pipeline transportation with GAIL.

"GAIL was created in 1984 by hiving off gas business out of ONGC. ONGC was producing oil and gas, and transporting it. GAIL was hived out of ONGC for transportation of natural gas, and then slowly it also acquired the activities relating to marketing of gas," an official privy to the development said.

He said it is a well-accepted fact that there is some conflict of interest between the same entity that carries out transportation of natural gas and also markets it.

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Over a period of time more players have come into gas marketing. Gujarat government entity GSPC is a major player in gas marketing and gas transportation.

"So, we have asked the PNGRB to look into this issue of how to resolve this conflict and come up with some suggestion," the official said.

The government had in 2006 issued the Policy for Development of Natural Gas Pipelines and City for Local Natural Gas Distribution Networks which envisaged that in the long run and with the maturing of gas markets, the authorised entities will have transportation of natural gas as their sole business activity and will not have any business interest in the gas marketing or city or local gas distribution networks.

"So, as we move towards a more gas-based economy, there is a conflict of interest between the activities of transportation of gas and marketing of gas," the official said.

Incorporated in August 1984 by spinning off gas business of ONGC, GAIL owns and operates about 11,000-km of natural gas pipelines in the country. It sells around 60 percent of natural gas in the country.

GAIL had in the past resisted the split on grounds that it is a gas marketing and transmission businesses operate at arm's length, and hence do not need to be separated.

GAIL's marketing business formed 71 percent of its 2016 -17 total sales, and 25 percent pre-tax profit.