The ongoing credit crisis is likely to result in lukewarm bidding by companies for the right to distribute gas in cities, according to officials in the Petroleum and Natural Gas Regulatory Board (PNGRB).
The board will open the first phase of bids for seven cities next month.
“The response might not be as strong as we envisaged. We feel aggressive bidding could be missing due to the current financial situation. Around six bidders could participate,” said PNGRB member BS Negi.
In the first phase, the board will call for bids for Kakinada, Mathura, Bhopal, Sonepat, Ghaziabad, Sahdol and Kota. GAIL Gas, a subsidiary of GAIL India, India’s largest gas marketer, Gujarat Gas, Great Eastern Energy Company and Reliance Industries have already submitted expressions of interest (EoIs) for these cities.
Each city will on an average require around Rs 400 crore for pipeline and marketing infrastructure. The seven bids involve an investment of around Rs 2,800 crore. The board had said over Rs 40,000 crore would be needed for city gas networks across the country.
Existing players believe that with lower demand eroding top lines and bottom lines of companies, only a few new companies may enter the sector.
“Companies will have to make huge investments. City gas distribution requires special expertise. The confidence and the comfort level of the new players could suffer due to the current economic condition and force them to rethink their strategy,” said PK Gupta, managing director of Mahanagar Gas, which supplies to households and vehicles in Mumbai.
Experts believe Reliance Industries Ltd (RIL), the country’s largest company by market capitalisation, could also revisit its plan. “RIL is cutting costs. Considering the investment involved and the uncertainty over gas supply to city gas distribution networks, it will not be prudent for RIL to set up infrastructure and let it remain idle,” said Vinay Nair, analyst, Khandwala Securities.
Industries are still waiting for RIL to start producing gas from its block in the Krishna-Godavari basin off the coast of Andhra Pradesh. The government’s gas use policy has earmarked 5 million cubic metres per day (mcmd) for distribution in cities. The supply to this sector is, however, fourth on the priority list after fertliser plants, idle power plants and petrochemical plants.
Negi is hoping that many companies will bid as the investments needed in city gas networks are much lower than in mega projects.
“In the middle of the global financial turmoil, with mega projects not appearing as attractive, new players could look at bidding for city gas distribution, which requires less investment,” Negi said.
The regulatory board is likely to auction the rights for 14 more cities in the second round.
The PNGRB expects that 100 cities will be covered by gas distribution networks by the end of the Eleventh Five-Year Plan (in 2012).
