GSPC Gas reaches daily gas sale of 3 mmscmd

Following the Gujarat government's mandate to Gujarat State Petroleum Corporation Limited (GSPC) to undertake city gas distribution project, the company's subsidiary GSPC Gas Company Limited has reached to around 1,50,000 PNG domestic customers as well as daily gas sale of 3 mmscmd in the state.

GSPC Gas Company, which supplies piped natural gas (PNG) to domestic, commercial or non-commercial and industrial customers, has so far covered 10 districts, 17 talukas and about 40 locations, from Vapi to Rajkot.

With daily gas sales volumes of 3.00 mmscmd, at present GSPC Gas has a base of approximately 1,50,067 domestic households, 629 commercial establishments, and 820 industrial customers. GSPC Gas is also operating 70 CNG stations across major part of Gujarat.

The company also provides natural gas to domestic, industrial, commercial and transportation segments, apart from city gas distribution projects.

The role of GSPC Gas in city gas distribution is being complemented by Gujarat State Petronet Ltd. (GSPL)'s gas grid of approximately 1,500 kms spread across Gujarat. At every location where the GSPL network ends, GSPC Gas' retail network starts.

GSPC Gas has achieved daily gas sale volume of 2 mmscmd on June 25, 2009 and in last 10 months; the daily sale has gone up to 3 mmscmd.

Similarly, GSPC Gas has touched 100,000 PNG domestic customer base on January 6, 2010 and in the current year has already added 50,000 PNG domestic customers at the rate of about 10,000 customers per month, making GSPC Gas the fastest growing city gas distribution company in India.

Source: Business Standard

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'I see huge growth ...I do not see any competition'

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

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City gas distribution can play a major role in inclusive growth

Gas is emerging as an important policy element in achieving equitable, balanced and sustainable economic growth through widening its user base beyond industries. Specifically, city gas projects offer a way to improve its availability through large-scale distribution of piped natural gas (PNG) to households and compressed natural gas (CNG) to the transport sector. PNG for city gas distribution provides an avenue to spread the gains of a new and liberalised economic policy to the common man. CNG is equally important to further this objective since it is linked to improving our health and quality of life through providing a clean environment.

On an energy-equivalent basis, natural gas costs considerably lesser than LPG, gasoline and diesel. Natural gas reduces vehicle maintenance costs as well. An added advantage is that unlike liquid fuels, gas cannot be adulterated or siphoned off from a vehicle. However, certain fiscal support or incentives may be required to induce switchovers and conversions.

Exhaust emissions from CNG vehicles are much lower than from petrol/diesel vehicles. For instance, CNG emissions of carbon monoxide are approximately 70% lower, non-methane organic gas emissions 89% lower, and oxides of nitrogen emissions 87% lower. In addition, CNG also emits significantly lower amounts of greenhouse gases and toxins. Vehicles that run on CNG are as safer as vehicles that run on fossil fuels. Being lighter than air, CNG, unlike gasoline, dissipates into the atmosphere in the event of an accident. CNG fuel systems are ‘sealed’, preventing any spills or evaporative losses. Also, natural gas is not toxic or corrosive and will not contaminate ground water.

The emerging change in city gas/CNG consumption pattern in India is evident through its growth from 1% of total gas usage in 2000 to 4-5% currently. In fact, the consumption in India’s domestic sector is substantially low compared to that in developed economies like the US and the UK. This only demonstrates the potential for huge expansion and growth in this area.

The expected higher availability of gas and aggressive growth plans of various players are likely to boost the supply, and consequently, demand. It is projected that CGD projects would account for nearly 20 mmscmd of gas in the long run against the current consumption of 5-6 mmscmd. Apart from households and the transport sector, demand from industries is also is expected to grow at a fast pace.

Public health and safety are of paramount importance, especially when the economically under-privileged sections lack measures to enhance their safety.

Here lies the importance of instituting universal standards and codes for designing CNG stations, equipment,network laying activities, etc. It is the need of the hour to devise such mandatory standards and a code of practice in this regard.

GAIL has been encouraging local entrepreneurs by providing technical guidance and sharing with them the market opportunities for developing/manufacturing indigenous CNG kits, storage cascades, compressors, NG-vehicles and related support services. This needs to be institutionalised for the continued growth of this sector.

The importance of effective regulation cannot be overemphasised. The gas industry in India is still at a nascent stage and the regulator has a pivotal role to play in ensuring good customer service and stimulating investment by ensuring a level-playing field for all players. The government needs to be complimented for timely enactment of the PNGRB Act, 2006, due to which the Petroleum & Natural Gas Regulatory Board is a reality now. The regulator will oversee the construction of new distribution networks and proposed additions to the network. The regulator can also ensure that the standards and code of practice are followed to take care of human safety and larger consumer interests.

Till date, city gas projects have been conceptualised in the country in a manner that it has remained confined to the municipal limits of a city. This has virtually ruled out the usage of CNG for a large number of vehicles plying on national highways because of the lack of distribution network and limited availability of the commodity. To overcome this limitation and to reduce pollution levels, mandatory use of CNG through the creation of a network along key highway corridors would be highly beneficial. Over time, such a network would also spread into cities and towns, and promote industries along such corridors.

As this new decade is going to be the decade of city gas distribution in India, the government, industry and transporters have to work in tandem to achieve the objective of effective and optimal utilisation of the commodity. ...

Source: Financial Express

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Gas and the city - far apart

Snarled in spats with established players and legal cases, the regulator has done little to streamline the process of expanding city gas networks.

Seldom have the ironies been as bizarre as in the case of city gas distribution (CGD) in the country. Long established CGD companies authorised by the government — and in some cases owned by it — have been at the receiving end of the regulator’s wrath while illegal entities have been allowed to continue with their squatting operations. Instead of the network expanding in a significant way, no new projects have come up in the last two years; on the other hand, expansion of existing projects was brought to a standstill for long periods although authorisations are now being accepted in some cases. This has been the paradox of regulation of the downstream gas sector.

With the courts entering the picture, the prospects of expanding the CGD network in the near future appear rather remote. This is because the functioning of the Petroleum and Natural Gas Regulatory Board (PNGRB) and its powers to license CGD companies has been challenged twice over — in a public interest litigation filed by a voluntary organisation and in a writ petition filed by a Supreme Court-mandated company. Both cases have been clubbed together by the Delhi High Court which is hearing the cases but the outcome seems a foregone conclusion since the government has admitted to the court that the regulator does not, indeed, have the power to issue any CGD authorisation! The supreme irony is that the key Section 16 of the PNGRB Act of 2006 that gives it powers of authorisation has not been notified so far.

How did things go so wrong on CGD? According to some analysts, the mess is entirely the making of the board which took a pugnacious stand on existing CGD entities — these include municipalities in Gujarat, public sector undertakings, joint ventures and private companies — some of which have been in operation for several decades. Almost from the word go, the five-member PNGRB, set up in October 2007, had expended much of its energies last year in questioning the authorisation given by the government to the handful of existing entities, specially the Delhi-based Indraprastha Gas Ltd (IGL). This not only delayed the expansion of CGD network but also stymied expansion of operations in the National Capital Region (NCR) where a critical Supreme Court’s directive to supply clean fuel to automobiles in the heavily polluted zone has been put on hold because of its injunctions against IGL.

The NCR imbroglio is a telling example of the PNGRB’s approach to CGD authorisation. IGL was set up in 1998 as a joint venture of the state-owned GAIL India, the public sector BPCL and the government of Delhi under a Supreme Court directive to clean up the heavily polluted NCR. This did not cut any ice with board which refused to let IGL proceed with expansion in Delhi initially and later in the NCR. Matters came to a head when the board included Ghaziabad, which forms part of NCR, in the list of seven cities put up for CGD bids in its second tranche.

The insistence of board — sources say it was the decision of the chairman — to put Ghaziabad to bid when IGL’s application for authorisation was pending with the PNGRB was all of a piece with its way of functioning. As industry saw it, IGL’s application was a mere formality since it had been working in Ghaziabad since 2002 and had already invested Rs 12 crore in the city for setting up two CNG stations and related infrastructure. The clincher in this case is that IGL has been working under the direction of the Environment Pollution Control Authority (EPCA) which reports to the apex court on pollution mitigation measures undertaken in the NCR and is in the process of laying pipelines and setting up another CNG station. A listed company, IGL is scheduled to spend Rs 76 crore this financial year and has drawn up plans for investment of Rs 300 crore over the next three years.

An outraged IGL has pointed out in its writ petition that the bid for Ghaziabad was called for even while the PNGRB was hearing its application for authorisation as the incumbent operator. Those familiar with the travails of setting up CGD networks point out that the board has shown little understanding of the problems of establishing such a business where getting land and a multitude of required local clearances take several years.

The importance of Ghaziabad is that it is far by the most promising location as responses to the PNGRB tender have revealed. It is a highly industrialised hub and investors expect to make handsome gains from supplying the industrial and commercial segment rather than from supplying domestic consumers or providing CNG for automobiles. So say industry insiders who point out that the board does not regulate marketing margins, leaving the investors free to charge their own rates. According to some credit rating agencies, the rate of return on capital employed can be as high as 20 per cent if companies leverage their financing ratios astutely. This would explain the scramble for Ghaziabad which has the largest number of contenders, including big oil companies (IOC and HPCL) and the omnipresent GAIL Gas which bids for all cities except those which Reliance Gas, a subsidiary of Reliance Industries, is angling for.


The surprise in the pack is Siti Energy, a little known outfit part-owned by a company floated by the Zee TV group. Siti’s bid is interesting primarily because it throws light on the functioning of the board. Although the company has shown assets of just Rs 2 crore against the stipulated net worth of Rs 150 crore for Ghaziabad bidders, some members of the board, it is learned, were keen to qualify the company ‘‘in the interests of fostering competition”. The company is seeking to include family jewellery and other assets like stocks to boost its net worth. However, strenuous objections from one of the members have forced the board to seek a legal opinion on the matter.

Ghaziabad is just one example of how the board’s handling of CGD projects is leading to problems all round. In June, the EPCA chairman Bhure Lal had written to Oil and Gas Minister Murli Deora warning that the regulator’s move would lead to more delays and jeopardise the work of pollution control in the NCR where a phenomenal 1.2 million vehicles ply daily. The letter had prompted Deora to ask the board to draw up a clear road map for rolling out CGD projects in a big way, specially since gas supplies are expected to be plentiful in coming months.

PNGRB’s target for setting up a CGD network across the country has been as ambitious as it has been elusive. A schedule unveiled last December had set a target of covering 86 towns and cities with a population of 100 million by 2011. So far, letters of intent have been issued for just six cities tendered in the first tranche, leaving the CGD map woefully sparse: India has just a dozen odd urban centres that have been in the CGD network for decades compared with well over a 1,000 in Pakistan. The picture is unlikely to improve soon because of the legal tangle. Whatever the Delhi High Court decides, it is time the regulator took a look at its record on expanding the CGD network and cleared the blockages, specially attitudinal.
Source: B.S
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