The Hindu Business Line : Draft regulation opens up prospects for city/local natural gas distributors

Eligibility criteria
At least one year’s experience in laying, operating and maintaining a CGD network.
Alternatively, applicants can partner with an entity thatmeets such qualifications.

Our Bureau

New Delhi, Nov. 15 The Petroleum and Natural Gas Regulatory Board’s draft regulation for prospective city or local natural gas distributors pretty much opens up the sector, provided companies can show credible plans for sourcing gas and a combined net worth of Rs 50-150 crore depending on the population addressed.

The ‘Regulations for Authorizing Development of City or Local Natural Gas Distribution Networks (CGD)’ has cited bidding criteria for the sector. Existing players include Adani Energy, BG’s Gujarat Gas and BG-GAIL’s Mahanagar Gas, BPCL and GAIL’s Indraprastha Gas and Bhagyanagar Gas in which GAIL and HPCL are stakeholders.

The draft prescribes minimum eligibility criteria of at least one year’s experience in laying, operating and maintaining a CGD network or a hydrocarbon pipeline of a minimum length of 300 km.

Alternatively, applicants could partner with an entity (with 11 per cent stake in the joint venture) which meets such qualifications. However, companies working with qualified turnkey management consultants or project managers with required experience in the business will also make the cut.

The bid bonds will be Rs 5 crore (Tier I cities ), Rs 3 crore (Tier II cities) and Rs 2 crore (Tier III cities). Companies would have to competitively bid on the basis of the tariff they would charge customers over the 25-year project life for which a weightage of 40 per cent has been reserved.

Weightage would also be given to the quality of steel pipelines used (30 per cent) and the number of domestic customers likely to be connected through the network (30 per cent). Players would have to submit a performance guarantee of Rs 4 crore-Rs 10 crore or 10 per cent of the estimated project cost (whichever is higher) for different markets.

Successful bidders will have to achieve a financial closure within 90 days of being allotted the project. However, in the case of an internally financed project, the company will have to get its board approval of its Detailed Feasibility Report (DFR). The regulations contain methodology on determining the network tariff.

The PNGRB may consider allowing exclusivity to a player provided the party makes the required investments to expand the network and allows access to other players after the exclusivity period.

For customers, the regulations also stipulate a maximum of Rs 2,000 refundable deposit per connection. The gas provider will also have to replace the domestic consumer’s LPG burner stove with a natural gas burner stove free of charge.

Stakeholders’ views have been invited by December 6, before the regulations are finalised.