New petrochem policy not to upset position of GAIL and Reliance

28-May-05

A new petrochem policy cleared by the minister for chemicals and fertilisers, Ram Vilas Paswan, has refrained from prescribing any direct regulatory role of the government to upset the monopoly positions of GAIL India in the natural gas market and Reliance Industries in the basic polymer segment. The policy has called for "specific policy interventions" to ensure the benefit of competition across the value chain and has seized the core issue of inverted import tariff that disallows fair competition. The pricing and availability of gas and basic polymers has been identified in the policy as issues that need to be diligantly addressed to ensure wholesome growth of the sector. Due to the near doubling of crude oil prices in the last one year and the protection to upstream (monopolistic) players, the average price of commodity polymers in India rose by about 50% during January 2004-05, higher than the 30% price rise witnessed in the Southeast Asian region. This price rise has hit a spectrum of downstream units - synthetic fibres, high-end polymers, elastomers, synthetic detergents and performance plastics - putting them at a disadvantage against suppliers of feedstock like naphtha, natural gas (GAIL) and basic polymer (Reliance Industries). This is because GAIL India and Reliance Industries have a tariff protection advantage.