AGL, the gas distribution arm of the Adani group, is to be listed as a separate entity in the first week of November, after being spun off from Adani Enterprises earlier this year.
In an interview, Pranav Adani, managing director, agro, oil and gas at Adani Group, talks about how the gas sector will propel the growth of the country in the next few years and how his the company is set to become the country’ largest CGD company in the next few years. AGL has plans to invest ₹ 8,000 crore in the next five years. Edited excerpts:
In the recently concluded ninth round of bidding for CGD neworks, Adani Gas won the highest number of geographical areas among all other players. Where do you see Adani Gas in the long-term?
We have recently won additional geographical areas in the ninth round of CGD bidding. Adani Gas is now authorized for 17 GAs and our joint venture with Indian Oil is now authorized for 18 GAs for natural gas network development and distribution. We endeavour to utilize our decade-long CGD experience and expertise to expeditiously monetize the new areas and also to expand to new geographies as and when offered by the government.
Adani Gas will continue to be a leader in the city gas distribution sector in India. We, along with our JV partner IOC, are already authorized to distribute gas in 35 geographical areas which have cumulative population of approximately 100 million. With the government planning to offer additional areas for gas distribution next year and rapid urbanization, we expect our reach to increase to 150 million. Assuming 0.2 standard cubic metres per day (scmd) as average per capita gas consumption, we have a potential market of 30 million scmd of gas. Our current gas volume is 1.5 million scmd. Thus, there is a decade of tremendous growth ahead of us. Demerger from Adani Enterprises and listing will allow a more focused approach thereby creating substantial value for stakeholders.
What has been the basis for selection of the geographical areas?
Currently, a CGD operator gets 25 years exclusivity in infrastructure development in the respective geographical area. Accordingly, our strategy is to select areas on the basis of the long-term demand outlook for gas.
Other factors that determine the selection process are the connectivity to the pipeline network, contiguity of GAs, possibility to develop CNG corridors, quantum of fuel usage, etc. Our business strategy will continue to revolve around these factors. If we take the example of areas like Gujarat and NCR, we have matured natural gas ecosystem and there is a huge market waiting for the infrastructure to be built.
How do you see the future of natural gas in India? What are your views on this?
The world is witnessing energy transition. This paradigm shift is being driven on the back of natural gas which is being heralded as the “transition fuel of the future". Currently, it is the fastest growing energy source, second only to renewable energy. India’s commitment to the world, under the COP23 Paris Agreement, to reduce its carbon footprint, can be achieved through timely adoption of natural gas.
The Indian government has taken exemplary initiatives to support transmission of gas pan-India like expanding pipeline connectivity in southern and eastern India, resolving regulatory ambivalence and allocating newer geographical areas for city gas transmission network.
Soon, around 350 districts are expected to have end-to-end natural gas connectivity to support large-scale adoption of natural gas.
The creation of such a large ecosystem will have the twin effect of increasing gas off-take and optimizing fuel cost for end-consumers.
If I can cite the example of Gujarat, gas penetration in the state is already at about 25% of the state’s energy basket owing to strong gas infrastructure.
A wider adoption of gas can help India fulfil the honourable prime minister’s vision to reduce oil import dependence by 10%. Adoption of gas will also help the country reduce its subsidy burden created by liquefied petroleum gas (LPG) and superior kerosene oil due to its market-linked pricing.
To answer your other question, the government of India has set itself a target to increase the share of natural gas in India’s primary energy mix to 15% till 2022 from the 6.5% in 2015. The focus on environmental health and pressing need for energy security make natural gas a top priority for India. There is, therefore, no doubt that natural gas will play a critical role in India’s energy strategy. Increasing usage of natural gas will also address three critical challenges: widening current account deficit (CAD), burgeoning fiscal deficit and rising air pollution.
Does India have access to adequate supply of gas to fulfil this transition?
Currently CGD consumes about 15-18% of domestic gas production and even at peak demand, consumption will be around 25-30%. The growth trajectory of domestic gas production suggests that there will be adequate supply of natural gas for the CGD segment.
What will be the role of CGD in achieving higher share of natural gas in India’s energy mix?
City Gas Distribution (CGD) distributes natural gas to the end-consumers as fuel to power transport vehicles in form of Compressed Natural Gas or CNG, and domestic usage, primarily for cooking in form of Piped Natural Gas or PNG. CNG is the substitute for conventional transport fuels like petrol and diesel and similarly PNG is for LPG.
CGD is the vehicle to increase reach of natural gas to the widest geography and to the largest populace. Recognizing this, the government has declared CGD as priority sector for allocation of domestically produced gas.
Adani ventured into the CGD sector quite early. Where do you see the company in the next five years or so?
We realized the vast potential of the sector quite early. Accordingly, we have worked our way to becoming the largest private sector CGD company in the country. We supply eco-friendly, cost effective and reliable natural gas for industrial, commercial, domestic and vehicular customers. As on June 2018, our network size stands at 6,000+ km pipeline and 70 CNG stations catering to more than 3.15 lakh households, 1,250 industrial units and 2,400 commercial units. We are currently authorized in 35 geographical areas.
In FY 2017-18, Adani Gas reported turnover of ₹ 1,395 crore and Ebitda of ₹ 374 crore. Our volumes increased by 17% to 479 mmscm (million metric standard cubic metres) y-o-y. We have achieved a y-o-y volume growth of 12% in CNG segment and 23% in PNG segment which also shows the kind of growth that will drive CGD business in the future.
We have partnered with IOCL, one India’s largest PSUs and a Maharatna company, for expanding our CGD footprint. The JV is authorized to develop infrastructure and distribute gas in 18 Geographical Areas (GA) and Adani Gas, unilaterally, is authorized to operate in 17 GAs. Together, we are covering approximately 7.5% of India’s population.
Do you see Adani Gas among the top few CGD players in the country in near future?
We already are the largest today in terms of authorizations. All the projects, once commissioned, will make us the largest in terms of infrastructure, customers and throughput. We aim to be the largest CGD company in the country in next five years.
What kind of investments do you plan to make in the next five years?
Adani Gas and IOAGPL, which is the JV between Adani Gas and IOCL, have already made total investment to the tune of approximately ₹ 2,000 crore in CGD business. We have efficiently utilized the investment to become the largest private sector city gas distributor in the country. We have recently won 22 new GAs in the 9th round of CGD bidding by PNGRB which takes the total count to 35.
We plan to invest about ₹ 8,000 crore in the next four to five years.