City gas supply companies spar with OMCs over hike in charges

City gas supply companies spar with OMCs over hike in charges

Mumbai: City gas distribution firms have sought the Centre’s intervention following a demand by state-run oil marketing companies (OMCs) for a higher commission on retail sales of compressed natural gas (CNG).

The Petroleum and Natural Gas Regulatory Board had last November barred OMCs, including Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd and Indian Oil Corp. Ltd, from opening CNG dispensing units at their retail fuel outlets. These OMCs have a commission-based arrangement with city gas licensees on CNG sales through their retail outlets.

City gas distribution companies, including Mahanagar Gas Ltd, Indraprastha Gas Ltd and Gujarat Gas, have urged the Union government to negotiate with the OMCs after they demanded a 90-100% hike in commissions from the existing ₹4.5 per kg to ₹7-8 per kg.

“OMCs have raised the demand for a steep hike in trade discount for filling CNG from their retail outlets. We have sought the intervention of the ministry of petroleum and natural gas in this matter and are hopeful of a resolution soon,” an official at a city gas distribution company said, requesting anonymity.

Motilal Oswal said any increase in commission or other costs will be a challenge for city gas distributors.

The OMCs have, meanwhile, been hit by rising rentals in metros where the bulk of their retail outlets are based.

Officials at OMCs said the ban on retailing CNG by the regulator was a setback as they were planning to scale up the segment to grow revenue. Besides, the sale of petrol and diesel gets affected with buses and three-wheelers—the bulk of customers—opting for CNG, said a senior OMC official, also seeking anonymity. “At a time when rentals are going up and fuel sales are going down, we will have to make up for the gap in revenue from somewhere. So, asking for an increased commission is not out of place,” he added.

Queries emailed to the spokespersons of OMCs and city gas distributors on Tuesday did not elicit any response till press time. Indian Oil is currently the market leader with 28,237 fuel stations, followed by Hindustan Petroleum at 15,855 and Bharat Petroleum with 15,289.

“After the covid outbreak, operating expenditure, manpower and fixed costs for city gas distribution companies have gone up. If OMCs impose a double increase in commission charges, it will impact our margins,” said the city gas company official cited above.

To meet rising costs, Mahanagar Gas had on 9 February raised the CNG price by ₹1.50 a kg and domestic piped natural gas price by 95 paise per unit in Mumbai. According to the firm, while minimum wages have gone up, operating expenditure on a per-unit basis sold increased from ₹4.70-4.90 (pre-covid) to ₹5.50- 5.70.

The OMCs said that according to a recent study by the companies, they have taken into account factors such as marketing efforts by them and the (fuel) substitution impact that their fuel outlets would have when CNG is retailed through them. OMCs also argue that by using their retail outlets, the city gas companies get not only readymade infrastructure but also customers. “All this involves costs,” said the OMC official cited above.

India has about 40 city gas distribution firms, which together operate 1,500 CNG stations. However, there are nearly 60,000 fuel stations dispensing petrol and diesel.

The share of gas in India’s energy mix is expected to rise to 15% by 2030, with the government’s push for creating a gas infrastructure. Companies are thus seeing a large opportunity in the sector.

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