Ind-Ra believes that the CGDEs volume growth has been aided by a) focus of the Delhi Government on strengthening public transport, through an increase in bus fleet b) reintroduction of the odd-even rule in Delhi c) decline in the prices of domestic natural gas d) change in the priority allocation for domestic gas in favor of CGDEs and e) continued cost advantage of petrol/diesel over CNG in terms of running cost per km.
The CGDEs in Delhi have already witnessed record CNG sales volumes of 2.67mkg/day in April 2016 (FY15: 2.23mkg/day). Ind-Ra believes that given the change in domestic gas pricing formula and the change in domestic gas priority allocation which took place a while back, the volume increase in April 2016 is a reflection of the impact of the odd-even rule in Delhi, wherein odd numbered vehicles would ply on odd days and similar case for even numbered vehicles, however CNG vehicles have been exempt from this rule. Driven by the convenience of using CNG vehicles on all days, there has been a shift in the preference for CNG vehicles. Further, the expectation that the odd-even rule would continue, has led to new buyers in Delhi NCR preferring CNG vehicles over petrol and diesel. The other factor contributing to the volume upswing is the increase in the public transport, wherein additionally around 1850 buses have been added during 9MFY16 in Delhi compared to around 580 buses added over FY13-FY15. Buses account for around 60%-66% of the CNG sales volumes, thus the aggressive addition of fleet will boost CNG volumes. Ind-Ra expects a 9%-11% volume increase in CNG sales volume in Delhi during FY17.
Furthermore, given that the competitive advantage of CNG continues to be high over petrol and diesel in terms of running cost per km, the conversion/new CNG vehicle purchase makes both regulatory and economic sense for buyers. In a declining crude price environment, the prices of petrol and diesel should have ideally declined along with the price of domestic gas; however, the government has kept the price of petrol and diesel high through the increase in taxes, thus leading to the competitive advantage retention for CNG over competing fuels. The price of diesel in April 2016 over April 2015 has increased to INR50.95/litre from INR49.72/litre, while the price of CNG has declined to INR36.6/kg from INR38.15/kg, thus maintaining its competitive advantage.
The Supreme Court had made it mandatory as on 16 December 2015 for diesel/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 extended to 31 March 2016 for the first time and thereafter, the court extended the deadline for diesel/petrol-powered taxis to move to the green fuel by 30 April 2016. The Delhi Government has to now submit a detailed and workable plan for the phase out/conversion of petrol/diesel run taxis by 5 May 2016.
Due to the alarming levels of pollution in various cities in India, Ind-Ra does not rule out the possibility that a similar regulatory stance may be implemented by other cities to curb pollution.
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