The Hindu Business Line : City gas distribution: ‘Regulatory uncertainties need to be sorted out’

Chennai, Aug 31 What can speed up investments in city gas distribution (CGD)? A fast-track removal of the many regulatory uncertainties, says a recent survey conducted by Crisil.

“The new regulations must facilitate the entry of credible players with demonstrated infrastructure development experience, besides ensuring intrinsic viability of licence area configurations,” say Mr Sanjay Sah and Mr Pankaj Wadhwa, both Team Leaders-Fuel Practice in Crisil Infrastructure Advisory.

The Eleventh Plan envisages investments to the tune of $2 billion in city gas networks by the year 2012 and it is estimated that various players are targeting around 200 cities/towns. While globally, CGD accounts for 20 per cent of total gas consumption, in India, it is only around 3 per cent. Hence, there is so much of enthusiasm amongst existing and potential players to invest in gas distribution.

“Translating this enthusiasm into real investment hinges on relevant regulations to be announced by the recently appointed regulator under the Petroleum and Natural Gas Regulatory Board Act (PNGRBA),” point out Mr Sah and Mr Wadhwa in a recent email interaction with Business Line.

“The regulations must allow market forces to determine commodity (gas) prices, provide a pre-determined supply exclusivity period primarily based on financial viability considerations and impart a defined role to State Governments to facilitate flow of such investments.”

Crisil Infrastructure Advisory’s survey had sought responses from senior personnel in the industry on issues such as licence area, criteria for the awarding licence, gas pricing, and the State Government’s role.

Among the many findings of the survey is that a majority of the respondents felt that the city, including its industrial areas, should be the licence area for a local gas distribution grid. “Many respondents also suggested the development of wider regions within the proximity of trunk pipelines.”

On what should be the qualification criteria, almost one in two respondents specified ‘financial strength and prior experience in laying/operating gas networks’ as the answer. “Majority of the respondents mentioned that availability of firm/contracted supplies of natural gas should not be a precondition for the authorisation process otherwise entities with access to gas would enjoy an unfair advantage.”

What should be the deciding criteria for the award of licence area? Sixty per cent of the respondents favoured “a weighted average score, which combines assessment of superiority of network expansion plans with competitiveness of network tariff.”

An overwhelming majority surveyed prefers letting market forces determine gas prices, while a few insisted on ‘an upper price limit for the CNG and PNG (domestic) segments’.

Many respondents saw a role for State Governments – ‘as facilitators by preparing plans for CGD development in their respective States’ and as holders of ‘minor equity stake’ in projects to facilitate network development.

The most important service obligations of any CGD service provider, according to half the respondents, should be the laying of pipelines across the city to reach all areas as well as charging a non-discriminatory network tariff within a class of consumers. “Some respondents suggested connectivity on demand to any consumer within ‘x’ meters of network pipeline as a possible market service obligation.”

While the survey was aimed at gauging responses to key issues, it was also designed to capture issues that the players saw as hampering the development of the CGD business, say the CRISIL experts. “One such concern voiced by nearly all respondents was inadequate availability of gas. The respondents suggested that the regulator could facilitate gas availability through mechanisms such as asking upstream players to earmark 20 per cent of their output for the city gas segment and/or conducting auctions for Government’s share of profit gas in which CGD players could participate.”

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