The Petroleum and Natural Gas Regulatory Board (PNGRB) will soon launch the eleventh city gas distribution (CGD) bidding round to give out licences for retailing gas in cities and extend the coverage of environment-friendly fuel to about 500 cities. The upcoming bidding round is being planned around a new pipeline being constructed from Angul in Odisha to Mumbai in Maharashtra to ferry natural gas between the east and the west coast. GAIL (India) Limited is currently working on the Angul-Mumbai pipeline.
The country is planning to increase compressed natural gas (CNG) retail outlets to 10,000 over a period of five years from around 2,434 in October 2020. Around 50 city gas area licences were awarded to 12 firms in the tenth bidding round in early 2019. The firms that were awarded licences in the tenth round will supply piped natural gas to 20.3 million households and build 3,578 CNG stations for the transport sector between 2020 and March 2029. With the completion of the tenth CGD bidding round, the CGD infrastructure will be made available to about 70 per cent of India’s population and cover 53 per cent of its geographical area.
Favourable policies for CGD infrastructure development led to a 60 per cent increase in consumption in 2018 over 2014, when the allocation priority was revised. Further, the demand for natural gas has grown at a compound annual growth rate of 21.4 per cent in the past 10 years, following the roll-out of CGD bidding rounds. Natural gas consumption in the CGD segment stood at 7 mmscmd during 2009-10, which grew to 48.8 mmscmd in 2019-20.
Upcoming opportunities in the eleventh round
Around 44 geographical areas (GAs), which exist in proximity to the upcoming pipelines, are planned to be announced in the eleventh CGD bidding round. These GAs are expected to increase the share of natural gas in the country’s energy basket over the next decade. The southern region has the highest number of upcoming GAs (13)-in the eleventh bidding round, followed by the western region with 12 GAs, the northern region with 10 GAs, the eastern region with six GAs and the north-eastern region with three GAs.
Some of the prominent upcoming GAs in the eleventh bidding round are Kanya Kumari, Tirunelveli and Tuticorin in Tamil Nadu; Jhargram, Paschim and Purba Medinipur in West Bengal; Nagpur in Maharashtra; Guntur, Yadgir and Mahabubnagar in Andhra Pradesh, Karnataka and Telangana; Kurnool and Prakasam in Andhra Pradesh; Beed, Jalgaon and Jalna in Maharashtra; Jhunjunu, Nagaur and Sikar in Rajasthan; Madurai, Virudhunagar and Theni in Tamil Nadu; Balodabazar, Gariyaband and Raipur in Chhattisgarh; and Tiruchirappalli and Namakkal in Tamil Nadu. The key pipelines around which these GAs will be developed are the Mehsana-Srinagar pipeline, the Jagdishpur-Dhamra pipeline, Mumbai-Angul pipeline and Ennore-Tuticorin pipeline.
The eleventh bidding round will create a plethora of opportunities in the aforementioned GAs, enabling CGD entities to enter untapped markets and cater to the demand segments. Further, connectivity from the upcoming pipelines in the proposed GAs will ease the sourcing of gas and improve the cost economics for CGD companies. The eleventh round also offers an opportunity to new private players to enter the CGD sector. As the proposed GAs cover a smaller population as compared to metro cities, the financial requirements will be lower. CGD entities are expected to get the freedom to formulate a pricing strategy as the PNGRB does not have the mandate to regulate prices, allowing entities to have better margins.
The regulatory framework was revised in the 9th round. A higher weightage was given to CGD infrastructure development by adding stringent penalty clauses that ensure that bidders bid achievable targets. Further, a percentage-wise split for each year’s minimum work programme (MWP) target has been specified by the PNGRB for eight years. A performance bond linked to population has been introduced for areas with a population greater than 5 million and a bond value of Rs 500 million, and areas with a population of less than 100,000 and a bond value of Rs 150 million.
The PNGRB has made a provision for eight years of market exclusivity, which can be extended by two years if the MWP targets are achieved each year, and by one year if the overall MWP target has been achieved. The infrastructure exclusivity has been set for a period of 25 years.
The eleventh round is expected to give an impetus to the development of CGD infrastructure in the country as the focus has shifted to untapped markets and to areas where pipeline infrastructure is lacking. The upcoming bidding round has put emphasis on inclusivity, which will help realise the true potential of natural gas in the country. w
Based on a presentation by Raman Jee Jha, Associate Director, and Abhinandan Dutta, Manager, PricewaterhouseCoopers, at a recent India Infrastructure conference