Developing Networks

Operator-wise key projects in the CGD sector

With the objective of promoting clean fuel use in the country, city gas distribution (CGD) networks were accorded public utility status in 2016. This allows the entities to increase the coverage of their networks, comprising domestic piped natural gas (PNG), industrial PNG, commercial PNG and compressed natural gas (CNG). Further, it becomes easier to secure government licences and clearances, and bring CGD networks under the ambit of the Essential Commodities Act.

The operational CGD network in the country is spread across 41 geographical areas (GAs) in 12 states (as of September 2016). The network comprises more than 45,900 km of distribution pipelines (including steel and polyethylene pipelines). Gujarat is by far the largest CGD consumer in the country accounting for an over 50 per cent share in the total CGD pipeline network, followed by Delhi-National Capital Region (22 per cent approximately) and Maharashtra (about 11 per cent).

Rajasthan State Gas Limited

Rajasthan State Gas Limited (RSGL) is a joint venture (JV), incorporated in September 2013 by GAIL Gas Limited (a subsidiary of GAIL (India) Limited) and Rajasthan State Petroleum Corporation Limited (a subsidiary of Rajasthan State Mines and Minerals Limited) to set up retail gas infrastructure in the state. In November 2014, RSGL signed an MoU with Rajasthan State Industrial Development and Investment Corporation Limited to develop industrial clusters for systematic industrialisation.

RSGL is responsible for developing CGD networks in four main cities – Kota, Jaipur, Udaipur and Ajmer. It has announced plans to develop CNG corridors from Kota to various cities in Rajasthan, such as Jaipur, Jhalawar, Baran, Udaipur, etc. The company has also announced plans to develop an interstate highway, which will span the Kota-Jhalawar-Dewas-Mumbai stretch. Further, there is a need to develop industrial clusters in and around Rampur, which will make the development of the CGD network a viable option, as focusing on Tier II cities alone will be inadequate for viability. In Jaipur, industrial clusters on National Highway (NH)-8, particularly in the ceramic zone at Ghiloth, will be developed, so that CGD network operators can have easy access to raw material and to a large consumer base in Northern India. An LNG hub is being developed at Udaipur and the Bhilwara-Udaipur pipeline,is about to be commissioned by GAIL. Further, industrial clusters will be developed between Jaipur and Ajmer.

RSGL will develop the CGD network in three phases. In Phase I, a mega CNG mother station will be set up at Neemrana and a daughter booster station will be established at Kukas (Jaipur). Once pipeline connectivity is established in Jaipur, the Kukas station will have an online CNG facility. Next, the company will operationalise a CNG corridor along the Delhi-Jaipur highway (NH-8) to cater to industrial customers in and around Alwar and Kukas. At present, the company is undertaking pre-project activities to provide connectivity to industrial clusters at Baran, Jhalawar and Ghilot.

Under Phase II, RSGL has announced plans to develop CNG networks in the cities of Jaipur, Ajmer, Sikar and Udaipur, along the Jaipur-Ajmer highway, the Jaipur-Kota highway, the Jaipur-Sikar highway and the Kota-Udaipur highway. Further, under Phase III, the company plans to import liquefied natural gas (LNG) from Dahej and transport it to distantly located districts which are not connected by a pipeline network.

Bharat Petroleum Corporation Limited

Bharat Petroleum Corporation Limited (BPCL) is an active player in the CGD segment. It also has a widespread presence in the upstream and LNG segments through its wholly owned subsidiaries, Sabarmati Gas Limited, Maharashtra Natural Gas Limited, Indraprastha Gas Limited, and Central UP Gas Limited (CUGL). Further, the company also has marketing rights in both the Dahej and Kochi LNG terminals. In addition, BPCL operates CGD networks in various areas in JVs with GAIL, GSPC and GAIL Gas Limited.

With greater clarity in policy and higher availability of indigenous gas for the domestic PNG and CNG segments, BPCL is now planning to develop CGD networks independently. So far, the company has secured authorisation for the development of CGD networks in Saharanpur, Yamunanagar and Rupnagar cities. Besides, authorisation for Rohtak is yet to be received.

CUGL

CUGL is a JV between GAIL (India) Limited and BPCL. The company was constituted for developing a CGD network in Kanpur. It is now looking at expanding operations to various other cities such as Jhansi. CUGL started commercial operations in Kanpur and Bareilly in 2006 and 2007 respectively. At present, CUGL is providing CNG and PNG services in both the cities. It serves a total of 600 domestic consumers in the PNG segment, as well as 10 commercial establishments and 12 industries. The company has also received authorisation to develop a CGD network in Unnao district and is now awaiting authorisation from the Petroleum and Natural Gas Regulatory Board (PNGRB) for developing a CGD network in Jhansi.

Recent authorisations

During 2015-16 and 2016-17, the authorisation to develop CGD networks in 37 GAs was granted by the PNGRB, including three cities covered under the fourth bidding round, seven cities covered under the fifth bidding round and 26 cities covered under the sixth bidding round.

Key issues and challenges

A CGD network has high fixed capital costs and a low working capital requirement. Projects are self-financing after five years of commencing operations. Further, CGD networks face various issues that affect the long-term viability of projects. For instance, CGD vendors are stuck with old technologies and this acts as a hurdle to project development. Manual meter reading is still prevalent. Further, the high cost and low availability of land for setting up CNG stations and the development of industries are other major issues faced by vendors.

Other issues are the long payback periods, the lack of control over fuel economics, delays in obtaining statutory approvals from multiple government and non-government agencies, slow scale-up in domestic demand and the lack of adequate profits in the PNG (domestic) segment, the lack of a balanced consumer mix in most cities (at present it is skewed towards the industrial sector) and competition from third-party marketers.

Conclusion

A number of CGD networks have been authorised by the PNGRB during the past two years, which have linked many Tier I and Tier II cities. Further, many new contracts are expected to be awarded under the seventh and eighth bidding rounds. However, various issues that hamper the growth of the network need to be addressed. This includes single-window clearances, the availability of land and favourable policies to support and promote the development of CGD networks.

Based on presentations by Ravi Agarwal, Managing Director, RSGL; Rajiv Sikka, Director, Commercial, CUGL; and Deepak Malik, Deputy General Manager, BPCL, at a recent Indian Infrastructure conference

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