India: City Gas Distribution: Creating Demand For India's Energy Future – Changes To Support The Shift To A Gas Economy

Last Updated: 22 March 2019
Article by Jatinder (Jay) Cheema, Akshat Razdan and Nakul Vohra

Just as the bidding closed on the 10th Round of the City Gas Distribution (CGD)1, fundamental changes have been made to the bidding criterion to create a regime that strikes a balance between the for-profit enterprises, and public interest and accountability.

In this first part of a two-part blog series, we assess these changes and the challenges faced in meeting targets to increase the share of natural gas in India's energy market.

Background

The Government aims to connect 1 crore households with piped gas by 2020. This is in line with increasing the share of natural gas in the primary energy basket from 6% to 15% in a phased manner, over the next few rounds of bidding. The 10th CGD Bidding Round covers 50 Geographical Areas (GA) spread over 14 States and 124 Districts. In this Round, about 225 bids were received in respect of all the 50 GAs offered, and a total of 12 companies, including Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited, GAIL Gas Limited and Gujarat Gas Limited managed to get 50 Geographical Areas (GAs) that were on offer under this round, which also includes participation from two foreign consortiums in this round.

Post the successful implementation of the 10th CGD Bidding Round, about 70% of the country shall be under the umbrella of the CGD network. It is envisaged that this initiative will help create a robust infrastructure by bringing in investment of about Rs. 50,000 Crore, generating employment and playing a significant role in achieving the shift towards a gas-based economy, with natural gas as the next-generation, cheaper and environmentally friendly fossil fuel2. Further, while promoting the concept of a gas-based economy, the Government has discussed the expansion of the distribution network to Myanmar, through Bangladesh, to meet its domestic requirement, alongside the nationwide expansion of the project.

The Petroleum and Natural Gas Regulatory Board (Board), the downstream regulator in the petroleum and natural gas sector, aims at providing regulation and authorisation for gas pipelines, i.e. CGD, along with providing good offices for resolution of disputes. Expeditious granting of permissions by the authorities, Government mandates and reforms in tariff regulations are the three most critical factors for CGD development.

The amended "Authorising Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks – Amendment Regulations, 2018"3 (2018 Amendment Regulations) shall be implemented with the 10th CGD Bidding Round . The need for such change came from the lukewarm response to the initial bidding rounds, which were plagued with "one paisa" or "near zero" bids.

The Re-Engineering Of CGD – The Challenges and Experiments

The 9th CGD Bidding Round also included two foreign consortium investors winning six GAs out of 78 GAs for which Letters of Intent (LOIs) were awarded by the Board. Due to amended Government policies, the number of GAs allotted to foreign consortium investors has increased to ten in the 10th CGD Bidding Round, thereby bringing global synergy, enhanced technology and long-term value for the Indian economy. For the 10th CGD Bidding round, the major challenge for the bidders is the development of a demand assessment model (baseline and forecasted demand), network layout, technical configuration/simulation and most importantly a bottom-up assessment of a viable Compressed Natural Gas (CNG) station location. The Board has put forth a robust system to monitor project implementation and facilitate the companies in resolving problems on the ground.

Some of the challenges and loopholes which deter effective implementation of the 2018 Amendment Regulations are as follows:

  1. Proviso (3), Regulation 12 of the 2018 Amendment Regulations provides for the extension of the exclusivity period in case of delay in the flow of gas4 in the designated transmission line. Such a provision is predisposed to misuse, by means of connivance between the bidder and the upstream gas producer, thereby leading to hoarding of the licence for longer than the approved exclusivity period. The Board has come up with the Minimum Work Programme5 (MWP), and follow ups, which would result in a "Reasonable amount of penalty", which in extreme circumstances may result in cancellation of the licence6.
  2. The success of the CGD network has been contingent on domestic demand, which is still resistant to the use of natural gas. In order to do justice to the magnitude of investment that had been made in the sector, local administrative authorities have come up with legislation pursuant to orders of the court in M.C. Mehta vs. Union of India and Ors7 to facilitate transition to CNG fuelled vehicles, alongside other initiatives, such as aiding public transport and the implementation of the odd even car rationing scheme, which exempt CNG run vehicles from the operation of such scheme. The success of this is shown by the record CNG sales in the capital, of 2.67 mkg/day in April 2016, post the implementation of such changes.
  3. Lack of a CGD corridor, and an expedited procedure for the procurement of permissions from various authorities such as the Railway authorities, National Highway Authority of India, Public Works Department, State Road Transport Departments, etc. heavily impacting the pace of development of the network. Thus, a streamlined procedural approach needs to be undertaken in order to achieve the goals set forth in each bidding round expeditiously. Further, third party excavation on the existing CGD network creates problems in gas transmission. The Board plans to coordinate with state governments and other agencies such as municipal corporations, railways and highway authorities to help companies resolve problems on the ground8.
  4. The Competition Commission of India (CCI), vide its order dated November 8, 20189 has justified the existence of long-term supply contracts taking into account various economic factors and foreign jurisprudence. Such power purchase agreements (PPAs), which extend beyond the exclusivity period of eight years, granted under the PNGRB Regulations, 200810, will discourage the construction of competing pipelines beyond such period and, thus, reinforce collective dominance in the industry.
  5. In the case of Petroleum and Natural Gas Regulatory Board vs. Indraprastha Gas Limited & Ors11, the Supreme Court held that the Petroleum and Natural Gas Regulatory Board (Determination of Network Tariff for City or Local Natural Gas Distribution Networks and Compression Charge for CNG) Regulations, 2008, are ultra vires the parent statute, and the Board was not empowered to fix the maximum retail price, thus leaving prices open to be determined by the competition, which could be prejudicial to the end consumer. However, such a decision is also investor friendly, and shall aid the expansion of the project, as India currently imports 75% of its domestic requirement; if companies are not given the autonomy to fix the tariff, it might dissuade them from investing in this sector.
  6. The profits and the public interest overlap best when the privatised service is in a competitive market. However, the 2018 Amendment Regulations envisages a monopolistic market in the Geographical Areas12, leaving public interest at the losing end of the tipping scale. Due to the highly capital-intensive nature of the industry, and lack of technical know-how, a growing share of total investment is now being taken up by the private sector. A pivotal benefit of public ownership is the reduction of "the cost of capital";in the case of private players, the cost is inclusive of the dividends and interest payments to be paid to the shareholders, thereby, leading to higher costs being borne by the end user. However, weak institutional and enforcement capacity to effectively regulate is the key issue in the landscape of the CGD project irrespective of the ownership.

In the second part of this blog, we take these challenges and assess how regulations will support the smooth implementation of a nationwide gas supply.

Footnotes

1 The last bid was submitted on February 5, 2019

2 10th CGD Bidding Round - Press Release dated February 5, 2019

3 Notified vide Gazette Notification No. F.No.PNGRB/Auth./CGD/Amd/2018 dated April 6, 2018

4 Petroleum and Natural Gas Regulatory Board ( Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008, Regulation12, Proviso (3)

5 Petroleum and Natural Gas Regulatory Board ( Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008, Regulation 7 (1) (b)

6 PNGRB may consider carrying forward the annual target from one year to another within the period of the first five years, if the delay in implementation is on account of valid reasons.

7 2015 SCC ONLINE SC 1327

8 Sanjeev Choudhary, 'Tenth round of licensing soon, to cover 50 districts', The Economic Times, (New Delhi, Sep 18, 2018)

9 Case Nos. 16-20 & 45 of 2016, 02, 59, 62 & 63 of 2017

10 Regulation 12

11 AIR 2015 SC 2978, (2015) 9 SCC 2009

12 Supra Note 6

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions