The Hindu Business Line : Regulatory board notifies criteria for city gas projects

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Regulatory board notifies criteria for city gas projects

Selection through open bidding process

Our Bureau

New Delhi, April 1 Companies interested in taking first steps into city gas projects can do so if they have a joint venture partner having experience in the sector, or three technically qualified persons on board having at least one year experience in the business.

The Petroleum and Natural Gas Regulatory Board (PNGRB) on Tuesday issued regulations for authorising entities to lay, build, operate or expand city or local natural gas distribution networks (CGD). This notification paves the way for the development of CGD networks in the country.

According to a PNGRB release, city gas distribution projects in over 200 cities will be awarded on the basis of network tariff, CNG compression charge, length of pipeline proposed to be laid and the number of households to be covered.

The regulations authorising entities to lay, build, operate or expand city or local natural gas distribution networks provide for selection of an entity through an open bidding process for laying, building, operating or expanding a CGD network. The regulations specify the minimum eligibility criteria for an entity to participate in the bidding process.

Exclusivity

On the issue of exclusivity, the regulations stipulate that after five years of monopoly, the CGD network would be thrown open to competition. However, the new entrant would not be allowed to lay new pipelines, but use the original contractors’ network on common carrier principle after paying a fee. The exclusivity for the pipeline network would be for 25 years that may be considered to be further extended by 10 years.

For the existing networks such as Indraprastha Gas Ltd and Mahanagar Gas Ltd, the period of exclusivity will be for five years, if the period of operation has been less than three years. In case the operations have been for more than three years, the period of exclusivity would be three years.

Network tariff

Regulations for determination of network tariff for CGD networks and compression charge for CNG for the networks are already in existence and have also been notified. The tariff will be determined using the discounted cash glow methodology and the rate of return on capital employed shall be 14 per cent post-tax, the release said.

The open bidding is in respect of four parameters with different weightages. Observers say that companies which have their own gas source can bid very low network tariff that has 40 per cent weightage and CNG compression cost with 10 per cent weightage in the overall bid to win a city.

The regulations also stipulate that inch-kilometre of steel pipeline proposed to be laid during the period of exclusivity would have 20 per cent weightage in the overall bid, while the number of consumers proposed to be covered in the same period would have a weightage of the remaining 30 per cent.

The regulations specify service conditions and quality of service standards, and the consequences of default and termination of authorisation procedure. The regulations also specify the procedure to be followed, while dealing with the entities which have been laying, building, operating or expanding CGD network before the appointed day, either authorised by the Union Government or not.