Views of D.K. Sarraf: “The PNGRB has redefined its role to that of a facilitator”

“The PNGRB has redefined its role to that of a facilitator”

The share of natural gas in India’s energy consumption basket had been reducing over the years. This has been mainly due to the inadequate supply of domestic gas and insufficient liquefied natural gas (LNG) infrastructure. However, in the past year or so, signs of recovery have been visible. India has plans to increase operational regasified LNG capacity to 60 million tonnes per annum (mtpa) from the current 28 mtpa. In addition, around 13,500 km of pipelines are either under implementation or have been proposed. At a recent India Infrastructure conference, D.K. Sarraf, chairperson, Petroleum and Natural Gas Regulatory Board (PNGRB), talks about new city gas distribution (CGD) bidding criteria, recent bidding experience, and CGD infrastructure expansion plans and targets. Excerpts…

Recent regulatory developments

Since 2018, the PNGRB has been working towards allaying the concerns of CGD operators. On the policy front, one of the major changes brought about has been the amendment to the bidding criteria for setting up of CGD networks. The market exclusivity period has been increased to eight years, extendable up to 10 years (as compared to five years earlier), 80 per cent weightage has been given to infrastructure creation (as compared to zero per cent earlier), tariff floors have been set to discourage unviable bids, the additional bid bond requirement has been removed, and penalties have been imposed for underachievement of minimum work programmes (MWPs).

As a result, the recently concluded Round IX offering 86 geographical areas (GAs) across 164 districts attracted huge investor interest from both domestic and global players. A total of 406 bids were received with around 10 GAs receiving more than 10 bids. Around 90 per cent of the GAs were awarded within a month by the PNGRB and the remaining 10 per cent were awarded subsequently. As per the work commitments for the GAs under this round, 15,305,564 domestic piped natural gas (PNG) connections will be provided, 3,627 compressed natural gas (CNG) stations will be set up and 98,001 inch-km of steel pipelines will be laid.

Encouraged by the huge investor interest, the PNGRB initiated Round X of bidding in November 2018. Offering 50 GAs across 24 states and 124 districts, this round also attracted an equally enthusiastic response with 225 bids received from 25 entities. All the offered GAs were awarded within 10 days of the last date of bid submission. As per the MWPs, 20,292,760 domestic PNG connections and 3,578 CNG stations for the transport sector will be installed during a period of eight years (up to March 31, 2029), in addition to 58,177 inch-km of steel pipelines.

With the completion of Rounds IX and X, CGD will be available in 228 GAs comprising 402 districts spread over 27 states and union territories covering approximately 70 per cent of the country’s population and 53 per cent of its geographical area. In the near future, fresh bidding rounds will be initiated once new gas transmission pipeline infrastructure is set up.

With Round IX, the PNGRB introduced e-bidding for the first time to ensure transparency in the selection and bidding process, thereby enhancing the pace of award. Earlier, the CGD companies were unable to get gas supply from the pipeline companies. To tackle this issue, the PNGRB made it mandatory for the companies to initiate gas supply to CGD entrants within 270 days of their application.

Role of a facilitator and market maker

Instead of being a mere regulator, the PNGRB has redefined its role to that of a facilitator. It has decided to engage in constant discussions with CGD companies to evaluate the issues being faced and work towards resolving them.

Further, the PNGRB also has a role in market making. It has been lobbying with the government to make the goods and services tax applicable on natural gas. It has already issued LNG draft regulations which are being deliberated upon through discussions with industry players. The regulatory authority is also working on creating a natural gas trading hub in compliance with the existing provisions of the PNGRB Act. It also plans to revise tariffs for older pipelines by March 2019.

The way forward

Given the pace at which the CGD industry is growing, there is a need to create an adequate human resource base and enable distribution of knowledge. With the huge number of GAs being awarded, there is going to be huge pressure on procurement of pipes, dispensers, compressors, etc. The CGD companies need to consider developing CGD equipment within the country.

Going forward, new areas such as LNG trucking and liquid-to-CNG are also expected to come up. Further, with the recently concluded bidding rounds, the majority of the highways have been fully covered under the GAs. This will further encourage conversion of diesel/petrol-fuelled vehicles to CNG.