City gas sector may finally see some competition – today news

  • November 19, 2023

Consumers may soon have the power to choose between multiple operators of piped natural gas (PNG) and compressed natural gas (CNG) fuelling stations in different markets, where single operators have been operating so far without competition.

Pointing to this possibility, Petroleum and Natural Gas Regulatory Board (PNGRB) chairman Anil Kumar Jain told Mint that the regulator would soon roll out new rules to allow for multiple natural gas operators to compete in various markets, especially those where infrastructure and marketing exclusivity for single companies is ending.

“However, it will be ensured that existing companies do not face any impact, such as new companies taking away attractive locations (with greater demand and footfalls), and that the new companies are ready to cater to remote and underserved areas,” Jain said, adding that the market would be opened up through an open and fair process.

Infrastructure exclusivity refers to the exclusive right to not only use current pipelines and related infrastructure, but also the right to set up new infrastructure in the designated areas, while marketing exclusivity refers to the right to solely market and sell CNG and PNG in allocated areas. Exclusivity periods vary across licences. The maximum period for infrastructure exclusivity is 25 years and that for marketing eight years.

The regulator had to roll back a similar attempt in fiscal year 2021 after a pushback from the incumbents, and so the new plan may run into resistance as well. If it does work out, it would end the dominance of sole natural gas operators, and allow consumers the luxury of choosing gas providers.

Queries emailed to Indraprastha Gas Ltd, Mahanagar Gas Ltd and Gujarat Gas Ltd remained unanswered.

“In places like Delhi, marketing exclusivity has already ended, but it (gas distribution) has not yet been opened up, and previous efforts to open up the sector have been challenged legally. The regulator will have to bring the regulation with a balance as it would be difficult to ask new players to focus on regions with less demand,” said Prashant Vashisht, senior vice-president and co-group head, corporate ratings, Icra Ltd.

Under the PNGRB Act, 2006, the regulator grants authorization to companies for developing city gas distribution (CGD) networks in specific areas of the country. CNG is predominantly used as an auto fuel and PNG is used in the domestic, commercial and industrial segments. The new rules would take effect once PNGRB issues a notification in this respect.

The development comes at a time when the government is looking to increase the share of gas in India’s energy mix to 15% by 2030 from the current 6%. So far, CGD networks have been authorized for 300 markets, covering about 88% of the country’s area and 98% of its population. Last month, the Union government launched the 12th round of bids for offering seven geographical areas in five states in the northeast and the Union territories of Jammu & Kashmir and Ladakh. The last date for submitting bids is 11 January 2024 and the regulator intends to finalize the award by March. Once the bids are completed, 92 cities will be covered by CGD operators.

Meanwhile, in a bid to boost CGD adoption in the country, the Union cabinet has approved new guidelines for natural gas pricing following recommendations by the Kirit Parikh-led committee, paving the way for linking domestic natural gas prices in India to global crude prices.

Following the change, the price of natural gas is calculated at 10% of the monthly average of the Indian crude basket, which is a weighted average of Dubai and Oman (sour) and Brent crude (sweet) oil prices.

Under the new regime, a floor price as well as a ceiling price were introduced for operators to source gas from oil and gas companies. Effectively, that would shield CGD and CNG operators from volatility in international prices. For the record, the upper and lower ceiling, respectively, are $4 per million metric British thermal unit (mmBtu) and $6.50 per mmBtu under the Administered Price Mechanism.

According to a report by Icra released in September, the implementation of the Kirit Parikh committee recommendations in April has helped gas operators improve their cost economics, resulting in the lowering of domestic gas prices.

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