The ninth round of auctions for city gas distribution (CGD) licences is set to alter the industry landscape, with the Government expecting investments of Rs 70,000 crore from the winning bidders. This amount will be four times the cumulative Rs 15,000-18,000 crore invested till fiscal 2018, according to Crisil.

On offer are 86 geographical areas (GAs) in 174 districts, covering 29 per cent of the population, compared with a cumulative 56 GAs awarded in the previous eight rounds in the past 10 years. The new GAs on offer include Chennai, Coimbatore, Visakhapatnam, Aurangabad and Bhopal, which have good demand potential.

Rating agency Crisil expects this round to receive a response way better than before because of the revised bidding norms, and the push from the Government through favourable policies. These include a marketing exclusivity period of eight years, extendable by two years, compared with five years earlier; tariff floors to discourage unviable bids; removal of additional bid bond requirement; and evaluation of bids based on higher infrastructure creation.

Since the CGD businesses in large cities are more profitable, licences for them are expected to draw greater bidding interest. Bidders are also expected to favour GAs adjacent to existing pipeline networks. Increased participation from public sector oil majors is likely, given the government impetus and higher weightage given to a number of new domestic connections in the bidding criteria.

“We expect greater participation as the ninth round of auctions has put a cap on the performance bank guarantee (PBG) amount,” said Sachin Gupta, Senior Director, Crisil Ratings. “In the earlier rounds, the PBG amount became the winning stroke,” he said.

Only large companies could offer high PBG, which shot up to as much as four times the project cost. What’s more, in the case of a tie in scores between the bidding entities, the entity that submitted the higher additional bid bond was declared the successful bidder.

PTI adds: The Reliance-BP joint venture today bid for a licence to retail gas in 15 cities, while Indraprastha Gas Ltd put in bids for 13 cities. Bidding for the biggest city gas distribution licensing round closes this evening.

India Gas Solutions Pvt Ltd -- the 50:50 joint venture of the UK’s BP plc and Reliance Industries, is making its maiden foray in city gas distribution as it put in a bid for 15 cities, sources said.

IGL, which retails CNG in the National Capital Region, is putting in bids for 13 cities, they said. Essel Infraprojects Ltd has put in a total of seven bids.

The government is targeting to raise the share of natural gas in the primary energy basket to 15 per cent from 6 per cent at present, within a few years.

The bid round is also aimed at meeting Prime Minister Narendra Modi’s target of supplying piped cooking gas connections to 1 crore households, roughly triple the current size, by 2020.

The CGD licences on offer are for Bhopal in Madhya Pradesh; Ahmednagar in Maharashtra; Ludhiana and Jalandhar in Punjab; Barmer, Alwar and Kota in Rajasthan; Coimbatore and Salem in Tamil Nadu; Allahabad, Faizabad, Amethi and Rai Bareli in Uttar Pradesh; Dehradun in Uttarakhand and Burdwan in West Bengal.

Prior to the ninth round, 91 GAs were awarded to firms such as Indraprastha Gas Ltd and GAIL Gas Ltd, which serve a population of 240 million, 42 lakh domestic consumers and 31 lakh CNG vehicles. Of these, 56 GAs were awarded through bidding rounds and the rest on government nomination. The bid round is being held on changed parameters after one-paisa bids spoilt the initial auction rounds.

Bidders have been asked to quote the number of CNG stations to be set up and the number of domestic cooking gas connections to be given in the first eight years of operation. In the previous eight rounds, bidders were asked to quote only the tariff for the pipeline that carries gas within the city limits. These bidding criteria did not include the rate at which an entity would sell CNG to automobiles or piped natural gas to households using the same pipeline network, leading to companies offering one paisa as the tariff to win licences.

In the new guidelines, maximum weightage of 50 per cent has been given to the number of piped gas connections proposed in eight years from the date of authorisation, as compared to 30 per cent earlier. The number of CNG dispensing stations proposed to be set up has been assigned 20 per cent weightage. Length of the pipeline to be laid in the GA and the tariff proposed for city gas and Compressed Natural Gas (CNG) have been assigned 10 per cent weightage each. Also, a floor tariff of Rs 30 for city gas and Rs 2 per kg for CNG has been put in order to deter bidders from quoting unviable tariffs of 1 paisa per unit.

Companies having a net worth of not less than Rs 150 crore can bid for cities with a population of 50 lakh and more, while the same for cities with population of 20 lakh to 50 lakh has been proposed at Rs 100 crore. The net worth eligibility goes down with the population, with a Rs 5 crore net worth firm being eligible to bid for cities that have less than 10 lakh population.

The last few rounds of CGD had evoked a lukewarm response. The fourth round was altogether cancelled, while the fifth saw a sparse response. The sixth round of bidding for 34 cities in 2015 got bids for only 20. The seventh round of bidding done to set up CGD infrastructure in 11 smart cities under smart city mission received only 1 bid. Seven cities were offered in the eighth round last year, but not all cities have been awarded so far.

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