Challenges in City Gas Distribution (CGD)

Background Paper

InfralineEnergy Thought Leadership Series Round Table Discussions

Challenges in City Gas Distribution (CGD)

City gas distribution (CGD) projects present a tremendous investment opportunity to prospective investors with expected increase in gas supply, changing regulatory scenario and growing concern over pollution in cites due to traditional fossil fuels. The two major factors that will enhance this growth are increase in domestic gas production and the development of infrastructure, both at local and cross-country level. This growth in CGD will be further pushed by market factors and by environmental activism. However, to capture this opportunity, developers need to analyse several critical aspects of the project in terms of demand, supply, project cost, market price scenario and risk factors. City gas networks represent local aspirations, and hence involvement of state/local government and citizens is the key to its success. Ministry of Petroleum & Natural Gas (MoPNG) wishes to encourage supply of compressed natural gas (CNG) for transport sector and piped natural gas (PNG) for household sector. It has nalised Vision-2015 of the oil sector for Consumer Satisfaction and Beyond, wherein 201 cities are to be provided CNG/PNG by the year 2015. The benets of CGD have positioned New Delhi to be largest CNG bus eet in the world, while it also has enabled more than 700,000 vehicles on Indian roads today. The success credit for Delhi CGD project denitely goes to Indraprastha Gas Ltd. (IGL); however, there have been certain factors behind the CGD projects massive success story in Delhi. Some of these factors are: Hazira-Viajipur-Jagdishpur (HVJ) pipeline passing near Delhi Honble SC directive to run the complete public transport system on natural gas to reduce vehicular emissions Lower dependence on public transport by the middle class, therefore, higher number of private vehicles No Sales Tax by the State Government Big geographical area offers more travel for commuters Large population in the main city as well as in satellite towns in NCR However, as in December 2010, out of the total natural gas supply of 169.03 MMSCMD to various sectors, CGD sector receives only 9.67 MMSCMD.
Present Daily Supply of Natural Gas (MMSCMD) Current Sector 2007-08 2008-09 2009-10 Supply Fertiliser 27.72 28.38 37.37 40.84 Power 39.21 40.31 60.49 71.99 City Gas 9.04 9.36 9.48 9.67 Renery + 8.38 8.66 18.93 21.26 PC Steel 4.08 4.22 7.13 8.35 Others + IC + 13.99 14.35 14.83 16.92 Shrinkage Total 102.42 105.28 148.23 169.03

The table above clearly shows that though recent focus on natural gas with new discoveries have added to the CGD opportunity, allocation to the sector is meagre, even after CGD being the fourth largest gas consumer followed by power, fertiliser and reneries sector. Therefore, there is a strong need for establishing a vast CGD network with accelerated pace, taking the ever increasing demand of the public into consideration. Moreover, measures should be taken for developing specic safety standards for CGD, while strengthening their monitoring by the third party. Besides this, some of the other challenges faced by the

CGD sector are: Developing and manifolding core competence of skilled manpower to efciently handle the operations in cities after cities Meeting consumer expectations in terms of: Cheaper fuel/competitive prices by multi-operators Easy availability anywhere Foolproof safety everywhere Expectations are to be met by the Government, by the Regulator and by CGD operators Thorough understanding of Regulatory Act and mechanism to avoid negations for synergy with the targets: Logical transparency in the regulations to efciently manage negations for winwin situation Common understanding of the Act to be read as a whole to make it effective and feasible for the public good Too much control should be prevented as it might severely impact the spirit of free competition Regulatory systems should have: Gas availability/allocation to all CGD entities, which are not gas producer or marketer Gas purchase pricing for CGD at reasonable price for public good Single window clearance from various statutory bodies Sharing of resources such as equipment, inventories at affordable prices Pipeline connectivity from pipeline infrastructure provider

Prioritisation of CNG and PNG industrial segments Regulatory controls seen as facilitator of expansion: Keeping public good in view, even limited monopoly of entity for a limited period may not be bad, so also by the existing proven track record CGD companies for meeting public expectations fast However, abuse of monopolistic attitude is bad for which regulator is empowered to control and check Strong nancial support has to be extended in laying out CGD infrastructure, particularly in terms of: Tax relief Access to funds for expansion New cities for CGD expansion Nevertheless, as a way forward, with a Regulatory Board (PNGRB) in place, it is expected that CGD business would get an impetus. Moreover, pipeline network expansion and implementation of CGD in around 150 cities by the XI Five Year Plan (FYP) by 2012 would fuel CGD development. Also, Government policies, such as various NELP rounds, Gas Utilisation Policy and Auto Fuel Policy, are also making the environment conducive for more investments. In a nutshell, signicant measures in the CGD sector would have several benecial effects on the economy and the environment. One of the most signicant benets would be the reduction in dependence on oil, as India imports 70 per cent of total oil demand, out of which 90 per cent of the total consumption is utilised by the transport sector.