Competition status quo to stay amid PNGRB notice: Industry experts

Petroleum and Natural Gas Regulatory Board (PNGRB) in a public notice said the infrastructure exclusivity granted to geographical areas in Mumbai and Greater Mumbai have expired

India’s natural gas regulator surprised the industry earlier this month with an expiry notice of infrastructure exclusivity for some city gas markets. Although an unexpected move, industry experts and executives do not expect it to upset the current competition status quo.

On March 4, the Petroleum and Natural Gas Regulatory Board (PNGRB) issued a public notice stating that the infrastructure exclusivity granted to geographical areas (GA) in Mumbai and Greater Mumbai has expired.
 

The end of the period for the stated exclusivity was mentioned as April 2021.
 

“Marketing exclusivity for city-gas distribution (CGD) was already under litigation. However, the March notice has brought out the issue of infrastructure exclusivity for the first time,” said Piyush Joshi, partner with Clarus Law Associates, who is representing some of the CGD companies in other litigation against PNGRB. He added, “Given that PNGRB does not have a legal member on its board and its earlier notified common carrier-related regulations are under litigation, the notice is surprising.”
 

PNGRB, in an email response, did not clarify the legal member aspect. However, they stated, “Infrastructure exclusivity for a few GA has expired. However, entities have not applied for further extension to PNGRB. Accordingly, the notice dated March 4, 2024, has been issued to inform that infrastructure exclusivity for such GA has expired. However, if such entities applied for an extension, PNGRB may consider in keeping with PNGRB Act and regulations”.
 

An email query sent to Mahanagar Gas (MGL) on Thursday remained unanswered.
 

The notice, among other developments, also took a toll on MGL’s stock prices, which closed at around Rs 1,264.55 per share on Friday.
 

Analysts with Nuvama in a report earlier this month termed the decline in stock prices as a “knee-jerk” reaction and added, “The PNGRB stated MGL’s Mumbai monopoly ended in April 2021; this, we argue, can extend by 10-plus years, given precedents. Critically, entrants cannot market at stations Mahanagar already dispenses at, minimising competition. And nothing can move forward until pending court cases are resolved”.
 

Executives and analysts in the industry agree on the minimised competition view.
 

“Technically, third-party marketing has been open for most CGD markets for many years now, but there is nothing to show as competition for any of these circles. Two main hindrances for new entrants not opting for it are that this market exclusivity is under litigation and second, there is unease around the possibility of non-trade barriers,” said Prashant Vasisht, senior vice-president and co-group head, corporate ratings at ICRA.
 

Indore, Mumbai, Delhi, and Ahmedabad are where marketing exclusivity ended many years ago.
 

“CGD companies are conscious not to aggressively push for clients in another incumbent’s market, for fear of being met with the same in their circles,” said an executive from a CGD company.
 

Joshi from the law firm also highlighted there is a push from the new entrants in the gas trading space instead.
 

“The gas sector has over the past few years seen the emergence of traders who wish to be asset-light. This will jeopardise infrastructure creation and give higher importance to volumes traded,” he said.
 

Vasisht from ICRA expects more litigation around infrastructure exclusivity, given there is already one underway about common carriage. He said, “We do not see any change in the status quo of competition, until and unless there is a clear and strong stand from either the judiciary or PNGRB. Current circumstances make it economically unviable for new entrants to procure new customers, without access to the existing compressed natural gas infrastructure, which lies with incumbents besides which cost-competitive gas is a scarce resource in the country.”


WHAT EXCLUSIVITY MEANS

• Marketing exclusivity: Exclusivity from the purview of a common carrier or contract carrier
   
• Common carrier capacity: The extra capacity in a CGD network over and above the authorised entity’s own requirements and the capacity allocated on a firm contract basis
   
• Infrastructure exclusivity: No third party can lay, build, operate, or expand any infrastructure for the supply of natural gas to consumers
   

Source: PNGRB