Indraprastha Gas Ltd (IGL) is a pioneer in city gas distribution and the monopoly supplier in Delhi. Currently in a legal battle with the Petroleum and Natural Gas Regulatory Board (PNGRB), Managing Director Rajesh Vedvyas in an interview with Ajay Modi and Jyoti Mukul says the company hopes to vigorously expand in Delhi and other NCR cities, even as it eyes a $1-billion business. Edited excerpts:
What are your expansion plans?
We have chalked out a five-year plan, so that we are able to improve or at least maintain the growth trend in both revenue and profitability. Realisations in 2010-11 should improve by 30 per cent and profitability higher by 15-20 per cent. The years following 2010-11 should also follow this trend. It won’t be surprising to find us touching revenues of $1 billion (Rs 4,500 crore) by 2014-15, from the Rs 1,250 crore estimated for 2009-10.
This will be through expansion in our core business of compressed natural gas (CNG) and piped natural gas (PNG). We have given out around 1,80,000 PNG connections and this number needs to be expanded to at least 5,00,000 in the next five years. There is also huge scope in PNG supply to industry and commercial units, unfilled due to gas sourcing issues. We now have enough gas tied up. So, that segment of business will also be a thrust area and huge growth is expected.
In CNG, the Commonwealth Games is a major growth driver. There will be a substantial increase in the DTC (city bus) fleet. There is a mandate from the Delhi government for all light commercial vehicles to change to CNG. There is a continuing growth in the private car segment, where the number of CNG vehicles is increasing by 40 per cent annually. Currently, there are 3,50,000 vehicles running on CNG and of this, 2,00,000 are private cars. The operating cost of CNG vehicles is 66 per cent cheaper than petrol and 36 per cent lower than diesel vehicles. Users just need to make a one-time investment of Rs 30,000, which can be recovered in two years.
Big queues are seen outside CNG outlets in the capital.
Barring a few outlets, no rush is being witnessed. We have taken a massive expansion in the number of outlets. In just one year (2009-10), we added 59 new outlets, taking the number to 240. In our first 11 years, we had added only 181. Land availability is an issue.
Is there an oversupply of gas? There is a view that LNG should be promoted for city gas.
The city gas business is bound to grow but it will not be able to absorb all the supply. There has to be some kind of mandate from the government to motivate or force some segments of consumers which are more polluting to switch.
Has the situation changed after the KG-D6 (Krishna-Godavari basin) block (find)?
Gas is no longer an issue. Now is the time for more and more entities to be awarded city gas projects. The challenge will be in setting up infrastructure, the speedy execution of projects. There may be a small problem with authorisation. There could be some issue with transmission of gas where there is a capacity constraint. GAIL is expanding its network and more cities will get linked.
Since 2002, the government has been trying to promote city gas but till early 2009, gas availability was a problem. Even R-LNG (regassified LNG) was not easily available. One had to take spot R-LNG to meet requirement. Now, enough KG-D6 gas is available. The gas availability constraint was removed just about a year ago.
How much of your gas is R-LNG? Are you also getting APM and D6 gas?
We are pooling the three gases and charging the average cost after including our infrastructure cost and operational cost. This is how price to the customer is fixed.
Is the demand for city gas expected to grow faster than other consumers, such as power?
City gas distribution takes time for infrastructure to be set up. If one decides today, it can take four-five years just to set up the infrastructure. We have ourselves experienced the pangs. Initially, it took us a lot of time to convince people about the advantages of natural gas. People were sceptical about safety. They need time to appreciate the advantages.
Delhi is a different case, where people run cars over long distances and see value in converting to CNG. In smaller cities, if there is no mandate to switch over to CNG, then we cannot expect people to switch immediately. So, city gas will succeed only with time. But, the business is bound to grow.
IGL has had problems with PNGRB on authorisation outside Delhi.
IGL began work in cities like Noida, Ghaziabad and Faridabad on the instructions of the Environment and Pollution Control Committee, formed by the Supreme Court in December 2002. Therefore, we prepared a project report, got our board approval and approached the government for gas allocation. Since then, we are working in Ghaziabad.
Later, the UP government gave IGL a NOC (no-objection certificate) in December 2005. Then, we applied for pipeline laying and got permission in January 2008. Meanwhile, we set up two CNG stations at BPCL outlets in Ghaziabad. Our equipment was ordered and we were about to commission more outlets. Around that time, in October 2007, PNGRB came into existence and asked entities to stop incremental activity in city gas unless it authorises. We applied to them, along with a report on status of projects. Again, they sent us a letter in March 2008, asking us not to proceed. They did not even recognise our Delhi authorisation.
After which, the government communicated to PNGRB regarding Delhi authorisation. Even while our application for Ghaziabad was with them, PNGRB took out an advertisement in February 2009, inviting bids for city gas in Ghaziabad. We strongly protested against it. PNGRB then called us for hearing. And, on March 19, they rejected our application, saying that we had not achieved enough progress and we did not meet the criteria laid down by them in March 2008. How could we meet regulations laid down at a later stage? Basically, their regulation was flawed. PNGRB also realised it and started a process to amend these. We approached the Delhi High Court. Moreover, since Section 16 of the PNGRB Act was not notified, the Board did not enjoy powers of authorisation.
When is the exclusivity period for IGL coming to an end?
Marketing exclusivity will end from January 2012. Network exclusivity is for 25 years.
Are you geared for any competition that comes?
We are fully geared up. If any player wants to utilise our network, we will have to provide open access. But, we are sure that our customers will find more value in using our services. We have developed high customer satisfaction. I do not see any competition. I do not think anyone else can offer the services at same price and quality as IGL.
Are IGL margins very high because it gets gas cheaper? There has been a recent increase in CNG price, too.
In the city gas business, we have to cater to all kinds of customers. In our case, we had to put our entire focus on CNG to meet the mandate from the Supreme Court, and in CNG, margins are better. However, in PNG we have low margins. We have not been able to focus on PNG due to stringent CNG targets. To some extent, the high profitability is due to high focus on CNG. Now, we have to expand PNG and we require huge investments, to the tune of Rs 1,500 crore. Our margins will be less once the PNG business is expanded.
If we make CNG cheaper, we will not have money. This year we have to resort to borrowings of around Rs 800 crore. So, far we were a debt-free company. Unless we are in good financial health, nobody will lend us money.
How do you compare IGL to oil companies which are much bigger in size but have so many problems?
It will be fair to compare us to companies in the same business like Gujarat Gas and Mahanagar Gas. My sense is that we are in more advantageous company because we operate in the National Capital Region. The future is probably brighter for us than for these two and this is reflecting in our share price. People have shown faith in the company.
Are you facing problems in expanding due to the Commonwealth Games?
We are not allowed to dig land for laying network, particularly in South and Central Delhi. Only after November will we be able to expand the PNG network in these areas. Currently, we are present in 53 zones and will reach another 17 in two years. Wherever our network has penetrated, 30-40 per cent people have switched to PNG.
Do you plan to expand beyond Delhi and NCR?
We are very open to examine on a case to case basis if it makes sense for us to venture in other cities. This we will try to do alone or in partnership with other companies.
Source: Business Standard
__________________________________________________________________________________
Posts
No comments:
Post a Comment