City gas discoms may lose exclusive rights to market CNG
MUMBAI: Exclusive rights to market piped natural gas (PNG) and compressed natural gas (CNG) of three city gas distribution companies—Mahanagar Gas Ltd (MGL), Gujarat Gas Ltd (GGL), and Indraprastha Gas Ltd (IGL)—may end in their respective geographical areas as the Petroleum and Natural Gas Regulatory Board (PNGRB) has called for determining network tariffs that a new entrant would pay for using their network and infrastructure.
The PNGRB has floated a concept paper on its website related to network tariffs a third party or a new entrant would pay the incumbent for using their network and infrastructure after their marketing exclusivity has ended.
City gas distribution or CGD refers to transportation or distribution of natural gas to consumers in domestic, commercial or industrial and transport sectors through a network of pipelines. This business has, over the last decade, attracted several companies to lay a network of gas pipelines.
The marketing exclusivity for IGL, which operates in Delhi, has ended in the region. For MGL, the exclusivity has ended in Mumbai and Thane, and will end in Raigad district in the next one year. For GGL, exclusivity has ended in around eight regions while it will end in four more areas over the next year.
Exclusivity in CGD protects the incumbent from the entry of new players who can be a possible threat to their business. CGD has infrastructure exclusivity for 20 years, with further extensions that can be acquired in blocks of 10 years.
The draft regulations by the PNGRB provide two ways for determining the tariff—first, based on 14% return-on-equity, and second, based on the auction process. The board has, however, invited comments from stakeholders within three weeks and proposes to hold an open house discussion in a month’s time.
“Though this move would challenge the monopolistic nature of the business, the incumbents may face competition largely in bulk supplies to state transport buses and industrial consumers. Because it’s difficult to attract retail customers who are already using PNG,” said an analyst from a rating agency.
Citi Research believes that there are several legal and practical considerations that may come in the way, and the move is likely to face stiff opposition from companies.
CGD network is expected to attract investments of as much as₹1.1 trillion over the next decade. At present, 31 firms are developing CGD networks across 81 geographical locations in 21 states and Union territories, supplying clean cooking fuel in the form of PNG to about four million households. The government, which plans to provide 10 million PNG connections, has introduced stringent emission levels for vehicles and plans to develop green corridors to reduce India’s carbon footprint.