Exclusive marketing rights of city gas distribution firms under threat
A PNGRB draft calls for determining network tariffs that a third-party or a new entrant would pay the incumbent for using their network and infrastructure after their marketing exclusivity endsPNGRB draft provides two ways for determining the tariff—first, based on 14% return-on-equity; and second, based on the auction process
PremiumMUMBAI : Exclusive rights of three city gas distribution companies--Mahanagar Gas Ltd, Gujarat Gas Ltd, and Indraprastha Gas Ltd--to market piped and compressed natural gas may end in their respective geographical areas as the Petroleum and Natural Gas Regulatory Board (PNGRB) has called for determining network tariffs that a new entrant would pay for using their network and infrastructure.
The PNGRB has floated a concept paper on its website related to network tariffs a third-party or a new entrant would pay the incumbent for using its network and infrastructure after its marketing exclusivity ends.
City gas distribution or CGD refers to transportation or distribution of natural gas to consumers in domestic, commercial or industrial and transport sectors through a network of pipelines. This business has, over the last decade, attracted several companies to lay a network of gas pipelines.
The marketing exclusivity for Indraprastha Gas that operates in Delhi has ended in the region. For Mahanagar Gas, exclusivity has ended in Mumbai and Thane and will end in Raigad district in the next one year. For Gujarat Gas, exclusivity has ended in around eight regions, while in four more areas it will end over the next year.
Exclusivity in CGD protects the incumbent from the entry of new players who can be a possible threat to business. City gas distribution has infrastructure exclusivity for 20 years, with further extensions that can be acquired in blocks of 10 years.
The draft regulations by the PNGRB provides two ways for determining the tariff—-first, based on 14% return-on-equity; and second, based on the auction process.
The board has, however, invited comments from stakeholders within three weeks and proposes to hold an open house discussion in a month’s time.
"Though this move would challenge the monopolistic nature of the business, the incumbents may face competition largely in bulk supplies to state transport buses and industrial consumers. Because it is difficult to attract retail customers who are already using piped natural gas," said an analyst from a rating agency.
Citi Research believes that there are several legal and practical considerations that may come in the way and the move is likely to face stiff opposition from companies.
City gas distribution network is expected to attract investments of as much as ₹1.1 trillion over the next decade.
At present, 31 companies are developing CGD networks across 81 geographical locations in 21 states and union territories, supplying clean cooking fuel in the form of piped natural gas (PNG) to about four million households. The government, which plans to provide 10 million PNG connections, has introduced stringent emission levels for vehicles and plans to develop green corridors to reduce India’s carbon footprint.
"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!
