A string of irrational bids it received during the third round of bidding for city gas distribution has led the Petroleum and Natural Gas Regulatory Board (PNGRB) to avert its possible recurrence in the fourth round.
The regulator’s move comes in the wake of complaints from a few players that almost all the bidders — in a bid to score more marks in the third round of bidding process for Jalandhar city in Punjab — indicated low figures towards network rates and compression charge.
The bidders include companies such as Siti Energy, Lanco Infratech, Indraprastha Gas (IGL), Jay Madhok Energy, IndianOil-Adani Gas, Gail Gas, Hindustan Construction Company (HCC), Ambience limited, LMJ Energy Infralogistics, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.
“The third round received a number of representations, saying biddings from players were not rational and were absurd,” a senior PNGRB official said. “On that basis, we received requests that the bids should be rejected. We are, however, yet to take a decision on rejecting them. We are seeking additional clarifications.”
The official said it would require settling these issues for the fourth round to be held. “That is why we are going through the public consultation process,” he added.
There are four bidding elements: network rate, inch kilometres of steel pipelines, number of domestic connections in the first five years and compression charges from year 6 to 25.
According to the parameters, the bidders will get a maximum score of 40 for network rate, a maximum score of 10 for compression charge, a maximum score of 30 for numbers of domestic connection and a maximum score of 20 for inch kilometre of steel pipelines.
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One bidder said there was a greater realisation that “irrational bidders’“ had not followed the letter and spirit of the PNGRB Act 2006 and the subsequent regulations issued as per the guiding principles enshrined in the Act. “The tariff projected by some of the bidders in third round is too negligible: 1 paise per million British thermal unit to recover the cost of laying the network. This is a violation of the Act,” he told Business Standard.
Also, such bidders are said to have distorted the compression charge upward in some years of the project life. For this, there may not be any takers as per the current market realities.
An industry expert said the projected revenue from the sale of compressed natural gas, therefore, may be an “illusion”. In fact, “it needs to be discounted for any consideration to determine return on the investment,” he added.
The additional clarifications issues by PNGRB include the submission of a feasibility report as per the guidelines provided in the application-cum-bid document, that the year-wise capex (in lakhs) will be incurred shall be derived as per a given formula, and that the variation in the network tariff as well as the compression charge for the CNG between any two consecutive years should not be more than 10 per cent.
Said another player: “Measures have been taken to ensure that loopholes are plugged. PNGRB is taking advise from all the bidders. The formula given to arrive at year-wise capex will ensure no one keeps capex unrealistically low.”
PNGRB said it wanted to clarify its stand to the bidders, given that it had not received any bids so far for the fourth city gas distribution round. “There is no point receiving bids and then rejecting them,” said the PNGRB official. “Seeking opinion from bidders could take time. This could delay the fourth bidding rounds.”