SC order on conversion of diesel-petrol taxis to CNG will boost volumes for CGD players, says India Ratings

The latest order by the Supreme Court to convert taxis run on petrol or diesel to Compressed Natural Gas (CNG) will lead to higher volumes for City Gas Distribution (CGD) entities in Delhi, research firm India Ratings and Research has said. CGD players in Delhi have started benefiting from multiple tailwinds that have aided higher volumes, it said.

"The monthly car conversion rate has increased to 4400 over the nine months of 2015-16 from 3500 in 2014-15 in Delhi. India Ratings expects this rate to increase further to around 5000-5500 per month in 2016-17 subject to the plan which will be submitted by the Delhi government for the phase out of taxis run on diesel and petrol," India Ratings said in a note.

The research firm said the CGD volume growth has been aided by focus of the Delhi government on strengthening public transport through an increase in bus fleet, reintroduction of the odd-even rule in Delhi, decline in the prices of domestic natural gas, change in the priority allocation for domestic gas in favour of CGD sector and the continued cost advantage of CNG in terms of running cost per km.

The CGD entities in Delhi witnessed record CNG sales volumes of 2.67 million Kg per day in April 2016 as compared to 2.23 million Kg per day in 2014-15. India Ratings said given the change in domestic gas pricing formula and the change in domestic gas priority allocation, the volume increase in April 2016 is a reflection of the impact of the odd-even rule in Delhi.

A major factor contributing to the volume upswing is the increase in the public transport where around 1,850 buses have been added during the nine months 2015-16 in Delhi compared to around 580 buses added over 2013-2015. Buses account for around 66 per cent of the CNG sales volumes. "India Ratings expects a 9 per cent to 11 per cent volume increase in CNG sales volume in Delhi during 2016-17," the firm said.

The government has kept the price of petrol and diesel high through the increase in taxes despite the decline in crude oil prices, leading to the competitive advantage retention for CNG over competing fuels.

The Supreme Court had made it mandatory in December 2015 for diesel and petrol taxis to shift to CNG by 1 March 2016. It doubled the entry tax of trucks entering Delhi and ordered all 10-year-old commercial vehicles powered by diesel to be taken off the city's roads. The deadline was first extended to 31 March 2016 and later to 30 April 2016. The Delhi government has to submit a detailed and workable plan for the phase out and conversion of petrol and diesel run taxis by 5 May 2016.