Gas connectivity: Poised for take-off

City Gas Distribution now complements the massive utilities delivery networking infrastructure sweeping across India

Bharat Net project, launched in 2011, is the National Optical Fibre Network to provide connectivity to all 250,000 gram panchayats. The Saubhagya project seeks to provide electricity connections to all households. As of mid-2019, Nal Se Jal (water from pipes), rechristened Har Ghar Jal (water for every household) commits to provide water connections to all households in the country by 2024.

Less talked about, but equally impactful, the City Gas Distribution (CGD) initiative joins the massive utilities delivery networking infrastructure now sweeping rural and urban landscapes, and transforming the lives of millions of Indians.

CGD is the great infrastructure story of the last decade that did not quite happen the way it was supposed to. Whether in the form of piped supply to households, or compressed natural gas (CNG) refuelling stations, it remained restricted to a few large cities. Even in such cities, such as Delhi, it has not been able to make a decisive mark. It has always played second fiddle to the more politically relevant liquefied petroleum gas (LPG), with much attention on the government’s Pradhan Mantri Ujjwala Yojana (PMUY) flagship scheme to distribute subsidised LPG cylinders to economically weaker households.

But the CGD initiative, using CNG, is now poised for take-off. After years of lacklustre movement, the last two rounds of bidding for geographical areas or GAs (similar to telecom circles) saw markedly better response, following a series of changes to the way the CNG auctions were designed. As of February this year, the regulator, the Petroleum and Natural Gas Regulatory Board (PNGRB) has bid out a total of 228 GAs around the country covering around 70 per cent of the population. 

It is the overall commitments made by winners of the various GAs that is revealing. Starting from April 2020, and up to 2029, winners have promised to deliver over 2 million piped gas connections per year, a total of 3,500 CNG stations across the country, and 58,000 km of pipelines. The overall aim is to raise the share of natural gas in the overall energy mix from 6 per cent to 15 per cent by 2030 (the global average is currently 24 per cent). India imports around 45 per cent of its requirement — a big plus for CDG is that it has first claim on supplies.

Illustration by Binay Sinha

 

It has not come a moment too soon. The PNGRB was set up in 2007. Since its inception, it had been locked in legal tussles with different stakeholders in the sector. Then came a whole slew of problems around the bidding out of GAs. The first couple of rounds of bidding drew muted response from the private sector. Then, in rounds 4-6, the pendulum swung the other way, toward a problem that has been all too common in Indian infrastructure — aggressive bidding. Bidders started bidding tariffs that were irrationally low. When this happens, it only results in bidders returning later to renegotiate the terms of their contracts, further litigation and NPAs. Then came a prolonged period where PNGRB Board slots remained unfilled, putting a further dampener on any expansion in the sector.

Once the new board was reconstituted, the PNGRB got its act together. New norms set a minimum tariff to discourage unviable bids and assessed bids on the promise to create greater levels of infrastructure. The rules also capped the amount of performance bank guarantee that could be offered — companies in earlier rounds competed to offer ever higher levels of bank guarantee in an effort to win the bid, regardless of the actual bid quality. To sweeten the deal, the PNGRB also extended the marketing exclusivity period from five to eight years for winning bidders in their respective GAs.

Thereafter, 2018 was, in many ways, a breakthrough year. In May 2018, the biggest CGD licensing round (round 9) offering 86 GAs in 174 districts was announced. This round received a good response from both domestic and global players. Over 400 bids were received for all the 86 GAs. On November 22, 2018, the foundation stones were laid for CGD projects in 65 GAs covering 129 districts. Bidding for the tenth round was announced for 50 GAs in 124 new districts, which subsequently closed in February 2019 with substantial investor interest.

The 10th round itself expects investments of about Rs 50,000 crore. Overall, investments of over Rs 1.5-Rs 2 trillion are envisaged in the next decade with over 40 private and state-owned companies vying for a share of the action.

Roll-out of CGD operations have commenced in Daman & Diu, Bhubaneswar, Dadra & Nagar Haveli, Kutch (West), Amroli, Dahod, Dahej-Vagra and Jalandhar cities. A slew of fresh authorisations have also been granted to new GAs.

For much of the CGD promise to be fulfilled, implementation is key. Coordination between central and state governments, city municipalities, the regulator and private sector stakeholders is critical. In spite of the renewed rush of adrenalin, concerns remain. They relate to high execution challenges in rolling-out the mother-pipeline network, the huge capital expenditures required, high cost of providing the ultimate last-mile connectivity, and finally at the customer end, penetration and cost-effective and sustainable O&M frameworks. Urban conglomerations in hilly terrain and in the north-east will require special attention. 

All done and dusted, the build-out of a giant city gas distribution network will have as important an impact on the economy as the Golden Quadrilateral roads project did, and will transform the way Indians will live, just as electricity and water connections have sought to do.     

The author is chairman, Feedback Infra