This year, Delhi and Mumbai crossed the one million mark in piped natural gas
connections. Beyond the two cities, access to the fuel will grow further to 402 districts across 27 states and Union Territories, covering 70 per cent of the country’s population, once the area under the tenth round of bidding is connected.
This is a long way from 1857, the year of the great revolt against the Raj, when a British joint stock company called Oriental Gas Company started offering piped natural gas
supplies in Calcutta (now Kolkata) for commercial and domestic purposes. After that, parts of Gujarat and Tripura also had piped gas networks, owing to the local availability of natural gas
in these areas. In fact, British Gas (BG), now merged with Shell globally, set up Gujarat Gas Company in 1980 to develop CGD
networks in Surat and Bharuch.
BG exited Gujarat Gas by offloading its stake to Gujarat State Petroleum Corporation in 2013 and subsequently exited Mumbai Gas Ltd (MGL), its joint venture with GAIL
India and the Maharashtra government earlier this year. But such exits do not reflect the steady growth of the CGD
business in India.
Going forward, however, CGD
providers may struggle to replicate Delhi and Mumbai’s numbers, principally because smaller cities may not have the same population sizes. Besides, the model that worked for these two cities evolved even before CGD rights were bid out.
IGL, a joint venture of GAIL
India, Bharat Petroleum Corporation and the Delhi government, has held the rights to the CGD network in Delhi since 1999, seven years before the legal framework for the business was laid out under the Petroleum and Natural Regulatory Board Act in 2006. Prior to that, GAIL
India was managing gas supply business in Delhi.
MGL, the BG-Shell joint venture till the multinational exited in 2018, also had equity participation from GAIL and the Maharashtra government. It was formed four years before IGL
The common factor between the networks in both states, then, was the participation by state-owned companies, which proved extremely useful in speeding up work since creating a gas network in a city is an infrastructure-intensive job. “It requires support and coordination from various departments and civic authorities for planning as well as execution. But the task was tougher in Delhi due to the multiplicity of civic authorities and the lack of a single-window clearance,” says E S Ranganathan, managing director, IGL.
Pipeline laying in the national capital was also a capital-intensive business owing to the heavy permission charges levied by civic agencies. Ranganathan, however, says IGL
was able to overcome the challenges by leveraging technological innovations to extend pipelines to newer areas.
Over the next ten years, the government expects around Rs1.1 trillion investment in CGD networks. But to push for laying a capital-intensive network for a product that is not subsidised and competes with LPG
cylinders that have a 30 per cent subsidy can be a tricky business. Currently, piped gas rates are almost on par with subsidised LPG
but with a growing share of imported gas and the deregulation of domestic natural prices, the cushion maybe lost. For consumers, however, piped gas that directly comes into the premises and gets automatically billed is more convenient than LPG
cylinders that need to be booked, received and stored.
In Europe and the US, power and gas suppliers are the same which helps in optimising infrastructure and other costs. Even in India, companies, like Essel Infra, have entered the utility business as both power distribution franchisees and CGD players. But Anish De, partner, infrastructure, KPMG in India, says the policy and regulatory frameworks for power and CGD are different and that comes in the way of convergence in India. “Unlike most other countries that have integrated energy ministries, in our case the ministries are different, the regulators are different and the entities are different. Even the legal framework under the Constitution is different. Where electricity distribution is a state subject, gas distribution is a central subject,” he says.
For the Indian CGD players, an optimum number of PNG and CNG connections are, therefore, even more important for viability. CGD rights are given out for geographical area (GA) and each of these has its own set of challenges. “Due to rapid urbanisation across the country, housing clusters have come up in all corners of India and the entities concerned in any GA plan their projects so as to achieve maximum number of connections and CNG stations to meet the commitment given to the regulator, in the minimum work plan (MWP),” says De.
CGD rights awarded 178 geographical areas
Number of Districts 280
Current CGD volume 25 million metric standard cubic meter per day
Total piped natural gas connections 4 million
Total CNG vehicles 4 million
Share of North & West India 95 per cent of volume sold
He added that the principal challenges lie in implementation because of the right-of-way issue in expanding the network. Cities are not planned with the required utility corridors to put in the kind of network that is needed to keep up with the connection commitments that are part of the successful bids. “The targets taken (committed by companies) are extremely aggressive in many CGD areas and it will be a struggle,” he says.
Getting permission to lay pipelines may be easier to get in less densely populated areas, though thickly populated ones may have a better market potential. “While getting land for setting up CNG re-fuelling stations is extremely tough in areas, like the National Capital Region, it would be much easier in other cities, where land is available and at reasonable prices,” says Ranganathan. IGL is, therefore, advocating the inclusion of CNG station lands and provision for PNG in new building plan approvals by the urban planning departments across the country.
The government plans to increase the share of natural gas to 15 per cent in the overall fuel basket of the country. A major challenge for CGD players, however, is sourcing natural gas.
For players like GAIL and Adani, which have access to natural gas and pipelines, it may be easier to supply gas to their subsidiaries. For Delhi and Mathura, there is the advantage of a Supreme Court order that gives them preference in natural gas allocation because of the fuel’s environmental benefits.
Though use of bio gas as CNG for vehicles will improve gas availability for CGD networks, pricing and demand will continue to be the deciding factors.