The dispute has been pending in the Delhi High Court since 2015. The PNGRB, however, started a consultation process for declaring the city or local natural gas distribution networks as common carriers or contract carriers only in 2019.
In the meantime, city monopolies became a far wider issue. There are almost a dozen players in the CGD business, such as Sabarmati Gas Ltd, Bhagayanagar Gas Ltd and Avantika Gas, which have licences (within geographical areas) in over 20 states. The exclusivity period varies from three, five and eight years extendable by 10 years, depending on when the rights were given.
The PNGRB is now taking careful steps to draft regulations on how to end the exclusivity and the subsequent issues of tariff and sharing of the existing infrastructure. Since the issue has been pending for over a decade for the IGL
and Gujarat Gas, they have diversified their areas in other cities. The MGL, however, has been conservative and not ventured much out of the Mumbai region, primarily because of promoter disinterest. Co-promoter British Gas, which was taken over by Shell, had decided to exit the CGD businesses in Gujarat in 2013 and later in Mumbai. The other promoters, GAIL and the Maharashtra government, have floated separate companies, GAIL Gas and Maharashtra Natural Gas Ltd, for the CGD business. GAIL is also in the CGD business under the parent company.
Gujarat Gas has already seen its exclusivity end in Morbi. It now has GAIL as a competitor there, but with a large industrial consumer base, the city could offer enough business to both the players.
Analysts say once the exclusivity ends, fair competition will begin, only if it is accompanied by deregulation. According to an ICICI Securities report, competition will emerge only if new entrants get natural gas at the same price as incumbents. Gas is supplied under a government-notified formula, which has led to super-normal profits for CGD, but low returns or losses for Oil and Natural Gas Corporation. Gas can now either be supplied in accordance with a new formula, under which the price is higher, or be deregulated for all, says the report.
This apart, oil marketing companies
(OMCs), which own 56-58 per cent of CNG stations at their sites in Delhi and Mumbai, are likely to emerge as the main competitors, the report adds. “This is reaffirmed by the comments of IOC and BPCL’s subsidiary Bharat Gas Resources in PNGRB’s consultation process,” says the report. he OMCs bid aggressively in the last two CGD auction rounds and now hold 77 licences to geographical areas. “While new geographical areas will take a few years to break even, CNG and supply to industrial and commercial consumers using incumbents’ infrastructure are likely to turn profitable fairly quickly,” the report adds.
Opening mature and large markets to competition could, however, create another issue for natural gas planners. The focus of new entrants could shift to those markets where both infrastructure and large customer bases exist. New players could find these markets more lucrative even though they are committed to invest Rs 1.2 trillion and are bound by contractual terms to begin commercial operations in other cities. This could mean that the expansion of natural gas infrastructure to other cities could slow down and future bidding rounds may suffer.
END OF EXCLUSIVE RIGHTS TO SELL
IGL in Delhi
MGL in Mumbai, Thane
MGL in Raigad (2020)
Gujarat Gas in eight areas
Gujarat Gas in four more areas (2020)
WHAT PNGRB DRAFT RULES SAY
Use up to 20% of incumbent’s pipeline capacity
Set up CNG stations
Sell CNG, residential PNG and gas to industrial and commercial customers
Pay tariff either on cost-plus or bid basis