The city gas distribution (CGD) sector is likely to see a significant increase in investments over the next three-four years, after the Supreme Court's judgement allowing asset-owning CGD companies to freely price their products, according to an India Ratings report today.
Operators had been going slow in new investments since 2010 due to regulatory uncertainty with respect to pricing.
"We expects a significant increase in investments in the city gas distribution (CGD) sector over the next three to four years, pursuant to the Supreme Court's judgement allowing asset-owning CGD companies to freely price their products," the India Ratings and Research (Ind-Ra) report stated.
Given the pricing flexibility, CGD entities would now see a 6 per cent increase in their return on capital employed, depending on the level of operating leverage in the business, the report stated.
Fresh investments would also be aided by the highest priority being accorded to the compressed natural gas (CNG) and domestic piped natural gas (PNG) categories of CGD since January 2014 in the domestic natural gas allocation, it said.
The judgement is unlikely to change existing CNG and PNG tariffs as CGD entities were charging tariff based on alternate fuels and not on Petroleum & Natural Gas Regulatory Board's (PNGRB) ruling, the report stated.
However, CGD entities might strive for somewhat higher Ebitda margin over the long-term, given the pricing control post the ruling, leading to slightly higher consumer tariffs, the report stated.
