Petroleum and Natural Gas Regulatory Board Act 2006

11. Functions of the Board.-The Board shall-

(a) protect the interest of consumers by fostering fair trade and competition amongst the entities;

(b) register entities to-

(i) market notified petroleum and petroleum products and, subject to the contractual obligations of the

Central Government, natural gas;

(ii) establish and operate liquefied natural gas terminals;

(iii) establish storage facilities for petroleum, petroleum products or natural gas exceeding such capacity

as may be specified by regulations;

(c) authorise entities to-

(i) lay, build, operate or expand a common carrier or contract carrier;

(ii) lay, build, operate or expand city or local natural gas distribution network;

(d) declare pipelines as common carrier or contract carrier;

(e) regulate, by regulations,-

(i) access to common carrier or contract carrier so as to ensure fair trade and competition amongst

entities and for that purpose specify pipeline access code;

(ii) transportation rates for common carrier or contract carrier;

(iii) access to city or local natural gas distribution network so as to ensure fair trade and competition

amongst entities as per pipeline access code;

(f) in respect of notified petroleum, petroleum products and natural gas-

(i) ensure adequate availability;

(ii) ensure display of information about the maximum retail prices fixed by the entity for consumers at

retail outlets;

(iii) monitor prices and take corrective measures to prevent restrictive trade practice by the entities;

(iv) secure equitable distribution for petroleum and petroleum products;

(v) provide, by regulations, and enforce, retail service obligations for retail outlets and marketing service

obligations for entities;

(vi) monitor transportation rates and take corrective action to prevent restrictive trade practice by the

entities;

(g) levy fees and other charges as determined by regulations;

(h) maintain a data bank of information on activities relating to petroleum, petroleum products and

natural gas;

(i) lay down, by regulations, the technical standards and specifications including safety standards in

activities relating to petroleum, petroleum products and natural gas, including the construction and

operation of pipeline and infrastructure projects related to downstream petroleum and natural gas

sector;

(j) perform such other functions as may be entrusted to it by the Central Government to carry out the

provisions of this Act.

15. Registration of entities.-(1) Every entity desirous of-

(a) marketing any notified petroleum or petroleum products or natural gas; or

(b) establishing or operating a liquefied natural gas terminal; or

(c) establishing storage facilities for petroleum, petroleum products or natural gas exceeding such

capacity as may be specified by regulations, and fulfilling the eligibility conditions as may be prescribed

shall make an application to the Board for its registration under this Act:

Provided that no registration under this Act shall be required for any entity carrying on any activity

referred to in clause (a) or clause (b) or clause (c) immediately before the appointed day but shall inform

the Board about such activity within six months from the appointed day.

(2) Every application for registration under sub-section (1) shall be made in such form and in such

manner and shall be accompanied by such fee as may be determined by the Board by regulations.

(3) The Board may, after making such enquiry and subject to such terms and conditions as it may

specify, grant a certificate of registration to the entity allowing to commence and carry on the activity

referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1).

(4) The Board may, by order, suspend or cancel a certificate of registration granted under sub-section (3)

in such manner as may be determined by regulations:

Provided that no order under this sub-section shall be made unless the entity concerned has been given

a reasonable opportunity of being heard.

16. Authorisation.-No entity shall-

(a) lay, build, operate or expand any pipeline as a common carrier or contract carrier,

(b) lay, build, operate or expand any city or local natural gas distribution network, without obtaining

authorisation under this Act:

Provided that an entity,-

(i) laying, building, operating or expanding any pipeline as common carrier or contract carrier; or

(ii) laying, building, operating or expanding any city or local natural gas distribution network,

immediately before the appointed day shall be deemed to have such authorisation subject to the

provisions of this Chapter, but any change in the purpose or usage shall require separate authorisation

granted by the Board.

17. Application for authorisation.-(1) An entity which is laying, building, operating or expanding, or

which proposes to lay, build, operate or expand, a pipeline as a common carrier or contract carrier shall

apply in writing to the Board for obtaining an authorisation under this Act:

Provided that an entity laying, building, operating or expanding any pipeline as common carrier or

contract carrier authorised by the Central Government at any time before the appointed day shall

furnish the particulars of such activities to the Board within six months from the appointed day.

(2) An entity which is laying, building, operating or expanding, or which proposes to lay, build, operate

or expand, a city or local natural gas distribution network shall apply in writing for obtaining an

authorisation under this Act:

Provided that an entity laying, building, operating or expanding any city or local natural gas distribution

network authorised by the Central Government at any time before the appointed day shall furnish the

particulars of such activities to the Board within six months from the appointed day.

(3) Every application under sub-section (1) or sub-section (2) shall be made in such form and in such

manner and shall be accompanied with such fee as the Board may, by regulations, specify.

(4) Subject to the provisions of this Act and consistent with the norms and policy guidelines laid down by

the Central Government, the Board may either reject or accept an application made to it, subject to such

amendments or conditions, if any, as it may think fit.

(5) In the case of refusal or conditional acceptance of an application, the Board shall record in writing

the grounds for such rejection or conditional acceptance, as the case may be.

61. Power of Board to make regulations.-(1) The Board may, by notification, make regulations consistent

with this Act and the rules made thereunder to carry out the provisions of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such regulations may

provide for all or any of the following matters, namely:-

(a) the time and places of meetings of the Board and the procedure (including quorum necessary for the

transaction of business) to be followed at such meetings under sub-section (1) of section 8;

(b) the powers and duties of the Secretary under sub-section (1) of section 10;

(c) the terms and conditions of the consultants appointed under subsection (4) of section 10;

(d) the capacity of storage facilities for petroleum, petroleum products or natural gas requiring

registration under sub-clause (iii) of clause (b) of section 11;

(e) regulating open access to and transportation rate for the common carrier or contract carrier or city

or local natural gas distribution network and other matters referred to in clause (e) of section 11;

(f) marketing service obligations for entities and retail service obligations for retail outlets under sub-

clause (v) of clause (f) of section 11;

(g) levy of fees and other charges under clause (g) of section 11;

(h) the technical standards and specifications including safety standards in activities relating to

petroleum, petroleum products and natural gas under clause (i) of section 11;

(i) the procedure to be followed by the Board including the places at which it shall conduct its business

under sub-section (3) of section 13;

(j) the manner of maintaining the Petroleum and Natural Gas Register under sub-section (1) of section

14;

(k) the form and manner of making application for obtaining certified copy of any entry in the register

and the fee which shall accompany such application, under sub-section (4) of section 14;

(l) the form and manner in which an application under sub-section (1) of section 15 shall be made and

the fee which shall accompany such application under sub-section (2) of section 15;

(m) the manner by which a certificate of registration granted under sub-section (3) of section 15 may be

suspended or cancelled under sub-section (4) of section 15;

(n) the form and manner in which an application under sub-section (1) or sub-section (2) of section 17

shall be made and the fee which shall accompany such application under sub-section (3) of section 17;

(o) the form and manner in which publicity of acceptance of applications for registration shall be made

under section 18;

(p) the manner of selection of an entity under sub-section (2) of section 19;

(q) the principles for determining the number of years for which a city or local natural gas distribution

network shall be excluded from the purview of a common carrier or contract carrier under sub-section

(4) of section 20;

(r) the guiding principles to be followed by the Board and the objectives for declaring, or authorising to

lay, build, operate or expand a common carrier or contract carrier for declaring, or authorising to lay,

build, operate or expand a city or local natural gas distribution network, under sub-section (5) of section

20;

(s) the affiliate code of conduct under which the entities are required to comply with under the proviso

to sub-section (1) of section 21;

(t) the transportation tariffs for common carriers or contract carriers or city or local natural gas

distribution network and the manner of determining such tariffs under sub-section (1) of section 22;

(u) the form in which a complaint may be made and the fee which shall accompany such complaint,

under sub-section (2) of section 25;

(v) the manner of holding an investigation by an Investigating Officer under sub-section (1) of section 26;

(w) the qualifications and experience which any person for appointment as an Investigating Officer shall

possess, under subsection (2) of section 26;

(x) the form and manner of maintaining data bank and information system by the Board under sub-

section (1) of section 51;

(y) maintenance of documentary records by an entity, under clause (a) of sub-section (1) of section 52;

(z) any other type of documents which are to be registered with the Board under sub-clause (ii) of clause

(d) of sub-section (1) of section 52;

(za) any other matter which is required to be, or may be, specified by regulations or in respect of which

provision is to be or may be made by regulations.

The Chief Administrator, Haryana Urban Development Authority, Memo No.A-1-2006/20942-63

Dated:07.06.2006

Para 4 Item 6) That the Company will give an undertaking to the effect that they will comply with the

provisions of the Petroleum and Natural Gas Regulatory Board Act of the Govt. of India

Para 4 Item 7) That supply of natural gas and its distribution shall be deemed to be a public utility

services like electricity and water supply etc.

UPA Report to the People 2007

8.1.8 FDI: FDI equity inflows have registered consistent growth during the last three years, increasing

from US$ 2.6 billion in 2003-04 to US$ 3.7 billion in 2004-05 and to US$ 5.5 billion in 2005-06. During the

current financial year 2006-07 (April-December 2006), FDI equity inflows were US$ 10.6 billion. FDI

inflows have exceeded FII inflows for the first time. Procedure for FDI under the general permission

route has been simplified. Extension of validity of foreign collaboration approvals has been relaxed.

Press Note 18 has been de-notified. Increases in FDI limit from 40% to 49% in civil aviation and from 49%

to 74% in telecom have been notified. 100% FDI has been allowed under the automatic route for

development of townships, housing, built up infrastructure and construction development projects.

Following decisions have been taken to rationalise policy and remove unnecessary hurdles and outdated

restrictions:

(i) allowing FDI up to 100% on the automatic route for distillation and brewing of alcohol, and for

manufacture of industrial explosives and hazardous chemicals; new airport projects; coal and lignite

mining for captive consumption for eligible activities; processing and warehousing in the coffee and

rubber industries; infrastructure related to marketing, natural gas or LNG pipelines, market study and

formulation, and investment or financing in the petroleum sector; power trading; wholesale trading and

sourcing for exports; and, exploration and mining of diamonds and precious stones; manufacturing

activities earlier attracting location restrictions;

8.2 ENERGY

8.2.1 Energy Coordination Committee: An Energy Coordination Committee chaired by the Prime

Minister has been set up to enable a systematic and coordinated approach to policy formulation and

decision-making in the area of energy planning and security, covering energy related issues across coal,

power and petroleum and natural gas sectors.

8.2.4 Petroleum and natural gas: With exploration and development efforts made under the sixth round

of bidding under the New Exploration License Policy (NELP-VI), natural gas production in the country is

likely to be doubled from the present level of gas production to around 90 million standard cubic metres

per day (MMSCMD) by the end of the Eleventh Plan period. Commitment of US$ 5 billion in exploration

and development of 52 blocks – as against 110 blocks in all the previous five rounds taken together –

have been tied up under NELP-VI. The process for NELP-VII has been initiated. It is expected that in

2007-08, India may join the rank of the few countries that commercially produce coal bed methane. The

UPA Government has encouraged oil PSUs to aggressively pursue acquiring of equity in overseas oil and

gas assets singly or through consortia or joint ventures. Blocks have been acquired or participating

interest secured in Vietnam, Cuba, Nigeria, Brazil, Libya, Syria, Gabon, Oman, Australia and Timor. As a

result, it is expected that during the Eleventh Plan period, overseas crude oil and natural gas production

would respectively be of the order of seven million metric tonnes annually and two billion cubic metres

annually. Law has been enacted to set up a Petroleum and Natural Gas Regulatory Board to regulate the

refining, processing, storage, transportation, distribution, marketing and sales of petroleum, petroleum

products and natural gas, excluding production of crude oil and natural gas, to protect the interests of

consumers and entities engaged in the activities specified, to ensure uninterrupted and adequate supply

in all parts of the country, and to promote competitive markets. The constitution of the regulator is

expected shortly. (PNGRB Act effective wef 1st October 2007 with the exception of Section 16)

Safety standards in activities relating to natural gas

Govt of India, MoP&NG No. G.S.R. 612(E) 27/08/2008

In exercise of the powers conferred by Section 61 of the Petroleum and Natural Gas Regulatory Act,

2006(19 of 2006), Petroleum and Natural Gas Regulatory Board hereby makes the following regulations,

namely:-

1. Short title and commencement

(1) These regulations may be called the Petroleum and Natural Gas Regulatory Board (Technical

Standards and Specifications including Safety Standards for City or Local Natural Gas Distribution

Networks) Regulations 2008.

(2) They shall come into force on the date of their publication in the Official Gazette.

.....................................

Item 9 of Appendix 1

To be implemented within 6 months of 27/08/2008

Emergency Response Plan, Disaster Management Plan and written emergency procedures. Also, provide

for an Emergency Control Room, manned round the clock and equipped with effective communication

system and emergency vehicles fitted with communication facilities, first aid equipment, fire

extinguishers, gas detectors, repair kits and tools, maps, plans, material safety data sheets etc. at its

disposal.

Schedule 1D Design,Installation and Testing

Schedule 1E Operating and Maintenance Procedures

Piped gas for small-town Gujarat

http://www.indiaenvironmentportal.org.in/content/piped-gas-small-town-gujarat

Date: 15/07/2008 Source: Times Of India (Ahmedabad)

AHMEDABAD: Gujarat is often referred to as the ‘gas capital' of the country. And, it is finally happening.

GSPC Gas, a subsidiary of Gujarat State Petroleum Corporation, has unveiled a massive plan to lay down

an elaborate pipeline network that will connect two million homes across the state with piped cooking

gas. While natural gas will be supplied as domestic fuel to all the 180 taluka headquarters across 26

districts of the state, the same grid will be used to open compressed natural gas (CNG) for vehicles in all

these centres.

Panel okays mixing of hydrogen with CNG

http://www.indiaenvironmentportal.org.in/content/panel-okays-mixing-hydrogen-with-cng

Author(s): S Kalyana Ramanathan, Suveen K Sinha Date: 16/07/2008

Source: Business Standard (New Delhi)

The Standing Committee on Emission Regulation — under the Ministry of Shipping, Road Transport &

Highways — today approved addition of hydrogen to CNG (compressed natural gas) for use in vehicles.

The proposal is to use CNG with 20 per cent hydrogen content. When this gets notified, India will

become the first country to use this mix on a commercial basis and take a definitive step towards

enhancing the use of renewable energy in automobiles. Hydrogen is freely available in the atmosphere,

though tapping it entails some cost.

Piped cooking gas to soon reach your kitchen

http://www.financialexpress.com/news/piped-cooking-gas-to-soon-reach-your-kitchen/354659/

Infrastructure Bureau

Posted: 2008-08-29 00:04:12+05:30 IST

Hyderabad, Aug 28 : Notwithstanding the initial constraints, the dream of the Indian middle class for

having ‘piped cooking gas’ into their kitchens is likely to be fulfilled soon.

L Mansingh, chairman, Petroleum and Natural Gas Regulatory Board (PNGRB), said on Thursday that the

board is expected to issue authorisation to the prospective gas distributors by March 2009.

The distributors are likely to take two more months to supply piped gas in Phase I states, including

Andhra Pradesh, Tamil Nadu, Gujarat, Maharashtra, UP and Haryana, he added.

“As the bidding process is time-bound, we propose to call for technical bids in the next one month and

issue authorisation to the prospective ‘city gas distributor’ by the end of March 2009,” Mansingh said.

Further, to facilitate the supply, the board is expected to notify the regulations relating to standards and

safety code, fixation of transportation tariff for city gas distribution network and fixation of

transportation tariff for pipelines in the next one month, he said.

He further said that the board has received overwhelming response from the prospective bidders to its

expression of interest call.

The board has received entries for about 71 cities from gas players evincing interest to develop city gas

distribution (CGD) network within the radius of 100-150 kms, he added.

According to the rough estimates, Mansingh said, the city gas distribution network may require an

investment of about $10 billion in the next five years. Mansingh is in Hyderabad to participate in the

CII’s Round Table meet on draft regulations on local natural gas distribution networks and to clarify

doubts raised by the prospective bidders.

On the constraints, the PNGRB chairman said that there is acute shortage for skilled manpower,

expected to manage the CGD network infrastructure, which is more hazardous.

While there are three universities exclusively catering to petroleum sector, he felt there is a need for

more since, oil and natural gas sector next to IT and telecom in providing employment.

Latha Jishnu: A costly regulatory standoff

http://www.business-standard.com/india/news/latha-jishnucostly-regulatory-standoff/12/21/341474/

Latha Jishnu / New Delhi November 27, 2008, 0:33 IST

With a crucial section of the law yet to be notified, the petroleum and natural gas regulator is operating

in a vacuum.

Regulators the world over are known to ruffle official feathers. Yet, seldom has a newly-formed

regulatory body found itself so much at loggerheads with its parent ministry and government-promoted

companies as the Petroleum and Natural Gas Regulatory Board (PNGRB). Since it came into being on

October 1, 2007, the board has been involved in several critical issues that have the potential to alter

the energy profile of the country. But its biggest battle is being fought over its own legitimacy.

The crux of the problem is a constitutional lacuna, the missing Section 16 of the PNGRB Act of 2006

which the government has failed to notify even a year after a five-member board was set up to regulate

downstream activities in the oil and gas sector. Section 16, dealing with the critical issue of

authorisation, states that no entity can lay, build, operate pipelines or city gas networks or expand their

network without the permission of the regulator except in one instance — if they have been authorised

to do so before the Act came into force. And Section 17 makes it clear that the central government is

entitled to give such authorisation. In which case, the entities have to furnish details of their activities to

the regulator within six months of it coming into force.

If the regulatory board is pretty much powerless without Section 16, it begs the question why the

government did not notify it. The explanation that is commonly offered by the petroleum industry

experts is that the government wanted to protect a clutch of public sector enterprises that have been

set up as joint ventures with national oil companies or private companies. One such is Mahanagar Gas

Ltd (MGL) in Mumbai, the oldest — it was set up in 1995 — and largest city gas retailer in the country

that is jointly owned by Gail (India) and British Gas. Another is Delhi’s Indraprastha Gas Ltd (IGL) that

started operations in 1998 as a joint venture of Gail, BPCL and the Delhi government.

Apart from the handful of joint ventures floated by central undertakings there are a host of players in

Gujarat, some private and others set up in partnership with the Gujarat State Petroleum Corporation. A

couple of other entities have also been authorised by Uttar Pradesh and Haryana. All this has resulted in

a pretty kettle of fish for the regulator. While the Centre wants to draw a clear distinction between

companies authorised by it and the ‘illegal entities’ operating or approved by state governments, the

board had asked all entities to seek fresh authorisation by March 31 this year.

The Ministry of Petroleum and Natural Gas initially chose to ignore this requirement, presumably

because Section 16 had not been notified. It was only when the board decided to put the screws on IGL,

saying it should stop all incremental activities and curtail any expansion since it had no ‘proper

authorisation’ that matters came to a head. IGL is important for several reasons. The publicly listed

company not only boasts a 1,350-km network that supplies piped gas to around 125,000 domestic

consumers but it also fuels over 230,000 motor vehicles with CNG in the National Capital Region (NCR).

The government, therefore, moved quickly with a directive overruling the regulator, who, in turn, has

refused to vacate its order.

The spat has turned into a protracted cat and mouse game between the government and regulator, the

denouement of which could have serious repercussions on plans to set up city gas distribution (CGD)

networks across the country. As it is, piped gas to several thousand consumers has been held up while

plans to set up new CNG fuelling stations have also been stalled. Unless the question of existing entities

is settled, there is no way the ambitious plan of bringing in investments of $10-15 billion into the sector

over the next ten years can take off.

IGL, according to a May 15 letter sent by the ministry to the regulator, is authorised to lay pipelines and

expand operations not only in Delhi but also in the suburbs of Noida (Gautam Budh Nagar), Gurgaon and

Faridabad. The board, however, has yet to accept this. PNGRB Chairman Lavanyendu Mansingh told this

newspaper that “the areas claimed by entities have to be decided by us”. Besides, “entities that are

seeking exclusivity need to come under a stringent screening process because we want to eliminate

squatters.”

Environmentalists point out that IGL was set up in 1998 in the wake of a Supreme Court directive to the

Delhi government to reduce pollution levels by switching all public transport to CNG fuel instead of

diesel. In fact, the NCR’s Environment Pollution Authority has in its October 2008 report emphasised

that only CNG buses should be allowed to ply in NCR in view of the phenomenal increase in the number

of vehicles crossing the area — it is now 1.2 million — and is taking the matter to the Supreme Court

again for directives on the supply and distribution of gas.

This has prompted IGL managing director Rajesh Vedvyas to seek permission yet again to expand

operations. On November 7, he wrote to the regulator that “in the larger public interest, IGL must

necessarily increase the number of CNG dispensing stations to cater to the ever-increasing number of

vehicles in the NCR area” and also to respond to the demand for piped gas from consumers. Vedvyas

pointed out that IGL has provided the necessary central government authorisation and also agreed to

abide by the regulations on technical and safety standards laid out by the regulator.

What then is the snag? The board is insisting that it would recognise only a ‘specific and formal’

authorisation and is claiming exclusive jurisdiction to deal with the matter. This, according to Solicitor

General Goolam E Vahanvati, is entirely wrong since there are no provisions in the law prior to 2006

which required the government to grant authorisation in a particular form or manner. He is also of the

opinion that the board does not have the right to question or review the authorisation given by the

central government.

It is learned that the board has sought an irrevocable undertaking from existing companies that entail

binding performance guarantees among other conditions. Gas companies, for their part, maintain that

this not required under the regulations. But the primary contention of entities that the board does not

have any power to authorise any entity in the absence of Section 16 is endorsed by the Solicitor General,

who says “the fact that Section 16 has not been notified is very significant.” As such, “the power of the

board to grant authorisation itself has not come into force.”

BATTLE FOR LEGITIMACY

* Petroleum and Natural Gas Regulatory Board Act notified in April 2006

* Section 16 which gives the Board the powers of authorisation has still not been notified

* Five-member Regulatory Board begins functioning from October 1, 2007

* Around a dozen existing companies come in conflict with regulator from April 2008

* 71 Expressions of Interest (60 from RIL) for setting up city gas networks

* Central Government gives authorisation to 11 existing companies for 25 areas

* Despite letters from regulator, Section 16 not notified by government

* Regulator calls for bids for gas networks in 6 cities

In his interview to Business Standard, however, Mansingh claimed that the authority of the board was

no longer in question since 11 entities authorised by the government had applied to the board for

clearance. This is a tacit acceptance of its authority, he says. Behind the scenes, however, the board is

pressing the government for a special gazette notification on the controversial section although a

laconic response from the government indicates that it is in no hurry to rectify the situation. It says the

issue has been referred to the Ministry of Law and Justice.

But matters are clearly getting out of hand. While the regulator is focused on entities such as IGL and

MGL, Gujarat is going ahead full steam with CGD networks across the state irrespective of authorisation.

Analysts say the regulator and the government need to resolve the standoff quickly, especially since the

board has called for the first tranche of bids for networks in six cities. But this move has only served to

deepen dissensions within the board.

Action Taken by the Government on the recommendations contained in the Sixteenth Report

(Fourteenth Lok Sabha) of the Standing Committee on Petroleum and Natural Gas (2007-08) on

`Supply, Distribution and Marketing of Natural Gas including CNG and LNG’]

TWENTY-FOURTH REPORT LOK SABHA SECRETARIAT NEW DELHI December, 2008

CHAPTER I

6. In response, the Ministry of Petroleum & Natural Gas has submitted as follows:-

“The Government of India has established the Petroleum and Natural Gas Regulatory Board (PNGRB)

with effect from 01.10.2007 under ‘the Petroleum and Natural Gas Regulatory Board Act, 2006’ to

regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum,

petroleum products and natural gas excluding production of crude oil and natural gas. The PNGRB shall,

inter alia, take up the authorization of entities to lay, build, operate and expand a pipeline as a common

carrier or contract carrier, in accordance with the provisions of the PNGRB Act, 2006”.(M/o Petroleum &

Natural Gas O.M. No. L-15016/6/07-GP dated 21.11.08)

7. During the examination of the subject, the Committee had been informed that requests for grant of

authorisation had been received from the Krishna Godavari Gas Network Limited to lay common carrier

natural gas pipelines in Andhra Pradesh and from the Reliance Fuel Resources Limited to build a natural

gas pipeline from Kakinada in Andhra Pradesh to Dadri in Uttar Pradesh. The Committee had

recommended that the Government should take expeditious and befitting action on these proposals,

considering the interests of the inhabitants of the concerned States. In its Action Taken Reply, the

Government has, inter-alia stated that the Petroleum and Natural Gas Regulatory Board (PNGRB) shall

take up the authorisation of entities to lay gas pipelines in accordance with the provisions of the PNGRB

Act, 2006. The Committee are not at all happy with the response of the Government. In the opinion of

the Committee, instead of simply stating that the PNGRB shall take up the matter in accordance with the

PNGRB Act, 2006, the Government should have collected the relevant data from the PNGRB and

furnished the same to the Committee. The Committee view this as lack of seriousness on the part of the

Government to their important recommendations. They desire to be apprised of the present status of

the proposals of the two companies.

9. The Ministry of Petroleum & Natural Gas has submitted the following reply in this regard:-

“1. The following trunk pipelines have been authorized by the Central Government:

Sl. No.

Name of the Pipeline State/Districts

1. Dadri-Bawana-Nangal Pipeline (by GAIL)

The approximate length = 610 km. U.P.: Gautam Budh Nagar, Ghaziabad. Delhi: North East Delhi, North Delhi and North West Delhi. Haryana: Sonepat, Panipat, Karnal, Kurushetra, Yamunanagar and Kaithal. Punjab: Sangrur, Bhatinda and Ludhiana.

2.

Chainsa-Gurgaon-Jhajjar-Hissar Pipeline (by GAIL)

The approximate length = 310 km. Haryana: Faridabad, Gurgaon, Jhajjar, Rohtak and Hissar. Rajasthan: Alwar.

3. Jagdishpur-Haldia Pipeline (by GAIL)

The approximate length = 876 km. West Bengal: Puruliya, Bankura and Medinipur. Jharkhand: Hazaribagh and Bokaro. Bihar: Bhabhua, Rohtas, Aurangabad, Gaya. U.P.: Rae Bareli, Sultanpur, Jaunpur, Varanasi and Chandauli.

4.

Dabhol-Bangalore Pipeline (by GAIL)

The approximate length = 730 km. Maharashtra: Ratnagiri and Kolhapur. Karnataka: Belgaum, Dharwad, Haveri, Davanagere, Chitradurga, Tumkur and Bangalore.

5.

Kochi-Kanjirkkod-Bangalore/Mangalore Pipeline (by GAIL)

The approximate length = 822 km. Kerala : Ernakulam, Thrissur, Palakkad, Mallapuram, Kozhikode, Kannur and Kasargod. Tamil Nadu: Coimbatore, Erode, Salem and Dharmapuri. Karnataka: Dakshin Kannada, Chamarajnagar, Mandya, Bangalore.

6.

Kakinada-Basudebpur-Howrah Gas Pipeline [by Reliance Gas Transportation Infrastructure Limited (RGTIL)]

The approximate length = 400km. Orissa: Bhadrak, Baleshwar and Mayurbhanj. W.B.: East Medinipur, West Medinipur, Howrah and Hugli

7.

Vijaywada-Nellore-Chennai Pipeline (by RGTIL)

The approximate length = 445km. Andhra Pradesh: Krishna, Guntur, Prakasam, Nellore and Chittoor. Tamil Nadu: Thiruvallur and Chennai.

8.

Chennai-Tuticorin Pipeline (by RGTIL)

The approximate length = 670km. Tamil Nadu: Thiruvallur, Vellore, Kanchipuram, Tiruvannamalai, Vilupuram, Salem, Namakkal, Karur, Dindigul, Virudunagar, Tuticorin, Tirunalveli, Ramanathapuram, Erode, Coimbatore, Dharmapur and Sivagana.

9.

Chennai-Bangalore-Mangalore Pipeline (by RGTIL)

The approximate length = 660km. Tamil Nadu: Thiruvallur, Vellore, Krishnagiri. Andhra Pradesh: Chittoor. Karnataka: Kolar, Bangalore Rural, Bangalore, Tumkur, Mandya, Mysore, Hassan, Chikmagalur, Dakshina Kannada.

(M/o Petroleum & Natural Gas O.M. No. L-15016/6/07-GP dated 21.11.08)

As per the terms and conditions for granting of authorizations, the project must be commissioned within

36 months of the start of the project.

2. The following city/local natural gas distribution entities have been authorized by Central Government:

Sl. No JVC AREAS OF OPERATION

1

Mahanagar Gas Limited

Mumbai and District Thane including Navi Mumbai and Mira- Bhayender.

2

Indraprastha Gas Limited

Delhi and its suburbs, viz. NOIDA (Gautam-budh Nagar), Gurgaon and Faridabad

3 Bhagyanagar Gas Limited Vijaywada and Hyderabad

4 Tripura Natural Gas Company Limited Agartala, Tripura

5 Maharashtra Natural Gas Limited Pune including Pimpri & Chinchward

6 Aavantika Gas Limited Gwalior, Ujjain and Indore

7 Sabarmati Gas Ltd. Gandhinagar, Mehsana and Sabharkantha

8 Green Gas Limited Lucknow, Agra

9 Gujarat Gas Company Limited Surat, Bharuch and Ankleshwar

10 Central U P Gas Limited Kanpur and Bareilly and cities of Eastern U.P.

11 GAIL (India) Ltd. Vadodara

(M/o Petroleum & Natural Gas O.M. No. L-15016/6/07-GP dated 21.11.08)

3. The Committee’s advice regarding ensuring long-term growth in the pipeline infrastructure, would be

borne in mind by the Government.

4. Oil Industry Safety Directorate (OISD) have developed comprehensive technical & safety standards for

Cross Country pipelines and City Gas Distribution Networks, i.e., OISD-STD-226 – “Natural Gas

Transmission Pipelines & City Gas Distribution Network”. These standards have been forwarded to

PNGRB. PNGRB is in the process of finalizing their regulations regarding technical and safety standards”.

(Already notified vide No. G.S.R. 612(E) 27/08/2008)

10. In their 16th Report (14th Lok Sabha), the Committee had desired to be apprised of the action taken

by the Government for preparation of a long-term perspective plan for creating gas pipeline network in

consultation with the various stakeholders, as stipulated under the Gas Pipeline Policy. They learn from

the Action Taken Reply that authorisations have been granted by the Government to some trunk

pipelines and city/local natural gas distribution entities. However, the Committee are constrained to

express their displeasure that the Government has not informed about the steps taken in the direction

of preparation of the perspective plan and consultations with the stakeholders. The Committee,

therefore, impress upon the Government to apprise them of the specific steps taken by the Government

so far in the direction of preparation of a long-term perspective plan for creating gas pipeline network.

11. The Committee had noted that the Gas Pipeline Policy inter-alia stipulated the constitution of a Gas

Advisory Board (GAB) to advise the Government on matters relating to this policy. They had been

informed that the constitution of the GAB would be considered after the Petroleum and Natural Gas

Regulatory Board (PNGRB) started functioning. Since the PNGRB had already been established, the

Committee had desired that the Government should put in place the GAB at the earliest.

12. The Ministry of Petroleum & Natural Gas has submitted the following reply in this regard:-

“The Gas Advisory Board (GAB) has yet to be formed. The recommendations of the Committee would be

borne in mind”.

13. In their 16th Report (14th Lok Sabha), the Committee had recommended that the Government

should constitute a ‘Gas Advisory Board’ as stipulated under the Gas Pipeline Policy. They had been

informed that the constitution of the said Board would be considered after the Petroleum and Natural

Gas Regulatory Board (PNGRB) started functioning. The Committee are unhappy to note that the Gas

Advisory Board has not yet been set up even though the PNGRB has been in operation for over a year.

Since the mandate of the Board is of paramount importance, i.e. to give advice to the Central

Government on the various aspects of promoting and developing gas pipeline network and city/local gas

distribution networks in the country, the Committee desire that the Gas Advisory Board be put in place

without any further delay.

17. Piped Natural Gas (PNG) has a number of advantages over Liquefied Petroleum Gas (LPG) such as

continuous supply, low cost, safety, no storage problem, tamper proof, etc. Similarly, large scale use of

CNG can also prove extremely beneficial in checking atmospheric pollution. However, in spite of these

advantages, the Committee had found that the introduction of CNG/ PNG had been confined to only a

few cities in the country. Considering the benefits of CNG & PNG, the Committee had reasoned that

there was a great need to extend the CNG/ PNG network to all major cities in the country in a time-

bound manner. They had, therefore, desired the Government to make a realistic assessment of the time

limit by which such facilities could be provided in all major cities of the country and based on this

assessment, prepare a road-map detailing various activities needed to be carried out for this purpose.

CHAPTER II

The wide gap between demand and supply of natural gas in the country is a matter of great concern.

The Committee have been informed that the estimated demand of natural gas in the country in 2010-11

would be 262.07 MMSCMD. Even though gas production is expected to increase substantially in the

coming years because of discoveries made from fields awarded under the New Exploration Licensing

Policy (NELP), the same would not be sufficient to cater to the requirements of various sectors. This fact

has been accepted by the Ministry whose conservative and optimistic gas supply projections in the year

2010-11 have been pegged at 113.09 and 197.09 MMSCMD respectively. The Committee are of the view

that in order to bridge the demand and supply gap, the Government has to act fast on both domestic

and international fronts. On the domestic front, the Government should lay utmost emphasis on

acceleration of indigenous E&P activities and exploitation of Coal Bed Methane resources, besides

intensifying the R&D on sources like gas hydrates and coal gasification. On the international front, there

is an urgent need to be part of the Trans-national Pipeline Projects so as to ensure a steady flow of gas

in the country. Besides, emphasis should also be laid on procurement of LNG from abroad. The

Committee desires the Government to take result-oriented approach in each of these areas.

REPLY OF THE GOVERNMENT

Government of India has adopted a multi-pronged strategy to augment gas supplies and bridge the gap

between supply and demand for the domestic market. These cover:-

(a) Intensification of domestic E&P activities;

(b) Exploitation of unconventional sources like Coal Bed Methane (CBM);

(c) Underground coal gasification;

(d) Implementation of Natural Gas Hydrate Programme (NGHP) for evaluation of hydrate resources and

their possible commercial exploitation;

(e) LNG Imports

(f) Gas sourcing through transnational gas pipelines.

2. The E&P activities have been intensified following the New Exploration Licensing Policy. So far, 6

bidding rounds have been successfully undertaken. A total of 162 blocks have been awarded in shallow

water, deep waters and onland areas to PSUs, JVs and foreign companies till date. The initial results

have been very encouraging, with gas discoveries in Cambay basin, KG offshore and Mahanadi basin.

Similarly, significant oil reserves have been discovered in Rajasthan. It is expected that more

hydrocarbon discoveries would materialize in the coming years as more and more investment is

attracted in E&P activities. Government offered 52 Blocks under 7th bidding round of NELP. 181 bids

have been received for 45 blocks. These blocks are being awarded shortly.

3. Government of India has also formulated CBM Policy and so far 3 bidding rounds have been

successfully undertaken. A total of 26 contracts for CBM blocks have been signed with PSUs and private

companies for exploitation of CBM gas. ONGC, RIL & GEECL have established 6 TCF in respect of four

blocks. Commercial production of CBM has commenced in July 2007 in one of the blocks in West Bengal.

4. ONGC has carried out seismic survey and drilled 18 boreholes for detailed Underground Coal

Gasification (UCG) site characterization in the selected Vastan mine block. The data is currently under

analysis for identifying exact location for pilot UCG. Four new sites, one in Gujarat and 3 in Rajasthan,

have also been identified.

5. The National Gas Hydrate Programme is being implemented with a scientific approach and a

programme has been undertaken for exploratory drilling. Over the past few years, huge amount of

seismic data and other data has been collected and field studies have been undertaken to study the

hydrate deposits and identify areas of prospectivity. Hydrate deposits are indicated both in the western

as well as the eastern offshore areas of India. Reserves estimation is under process based on the drilling

core samples collected.

6.1 Pursuant to LNG coming under ‘OGL’, a Joint Venture Company, viz., Petronet LNG Limited (PLL),

promoted by ONGC, GAIL, IOCL & BPCL, was formed in order to import LNG and to set up an LNG

regasification plant at Dahej. PLL signed a contract with RasGas, Qatar in July 1999 for import of 7.5

million metric tonnes per annum (mmtpa) LNG for a period of 25 years. As per the contract, supply of 5

mmtpa LNG commenced in 2004 and the supply of balance 2.5 mmtpa LNG would commence in 2009.

Further, PLL has signed a contract with RasGas, Qatar in July 2007 for supply of 1.5 mmtpa LNG to meet

the requirement of Ratnagiri Gas and Power Private Limited (RGPPL). It is valid till September 2009.

However, the price of the gas provided under short term contract is valid only till December 2008. For

supplies beyond December 2008, the price has to be re-negotiated. In addition to the above term-

contracts, LNG is also being sourced from spot market by PLL and Shell. During 2007-08, about 8.32 mmt

LNG was imported, which is equivalent to about 29 mmscmd of RLNG. Out of total LNG import of 8.32

mmt during 2007-08, the share of HLPL is about 2.02 mmt.

6.2. Concerted efforts are being made to augment the supply of LNG to the country. Regarding import of

5 MMTPA of LNG from Iran, the matter is being pursued with the Government of Iran. Minister (P&NG)

discussed the issue with President of Iran at Shanghai in June 2006 and again during his recent visit to

Tehran on April 25 and 26, 2007. PLL is at advanced stage of discussion with Gorgon, Australia for import

of 2.5 MMTPA LNG for Kochi LNG Terminal. GAIL and PLL are exploring possibility of import of LNG from

various potential suppliers.

6.3 In order to handle increased LNG import, additional infrastructure is being created in the country.

PLL’s Dahej LNG terminal is being expanded from the current 5 MMTPA capacity to 10 MMTPA capacity.

The expanded facility is scheduled to be completed by January 2009. Hazira LNG Pvt. Ltd. (HLPL)’s LNG

terminal is being expanded from 2.5 MMTPA to 5 MMTPA. Dabhol LNG terminal is expected to be

completed by end of December 2008. The terminal will, however, become fully operational only after

completion of breakwater facilities in 2011. PLL is setting up an LNG terminal at Kochi which is planned

to be commissioned in 2012. In addition LNG terminals are planned to be set up by IOC and ONGC at

Ennore and Mangalore respectively.

7. India is in a geographically advantageous position, because of huge gas deposits to its North-West in

Russia and Central Asian Republics, in West Asia in Iran, Qatar and Abu Dhabi, and finally towards its

South/South East in Myanmar and Bangladesh. These reserves are at distances that makes it

economically viable to lay a gas pipeline. Discussions are presently underway with the Iranian

Government for import of 30-90 MMSCMD gas through Iran-Pakistan-India (IPI) pipeline in 2 phases.

India is also pursuing import of natural gas from Turkmenistan through TAPI Gas Pipeline Project. During

the 10th Steering Committee Meeting of the Project held in April 2008 at Islamabad, India has been

admitted as an official member of the Project. (M/o Petroleum & Natural Gas O.M. No. L-15016/6/07-GP

dated 21.11.08)

Recommendation (SI. No. 2, Para No. 4.2)

The Committee note that at present the pricing of APM gas, which comes from the fields of ONGC and

OIL given to them on nomination basis, is being decided by the Government, while the pricing of gas

produced from the fields under Joint Venture/New Exploration Licensing Policy is being governed in

terms of provisions of Production Sharing Contracts (PSC). The Committee further note that the share of

APM gas, which forms about 60 per cent of the total gas available at present, is likely to come down to

around 15-20 per cent by 2011-12 while the production from NELP/JV fields would go up to a

considerable extent. Thus, it would be in the fitness of things to develop a suitable pricing mechanism

for the gas produced from NELP/JV fields. As per the provisions of the PSC of the NELP rounds, the price

of natural gas for sale to consumers is to be market-driven. The PSC also stipulates that prior approval of

the Government has to be obtained for the formula or the basis on which the price is fixed. The PSC

further states that while granting approval, the Government shall take into account the prevailing policy

on pricing of natural gas and it may delegate or assign this function to a regulatory body as and when

such an authority is in place. The Committee have been informed that a High Powered Pricing

Committee has been constituted to prescribe a clear set of guidelines in order to ensure that the pricing

is determined on a transparent basis. The Committee, while appreciating the constitution of the High

Powered Pricing Committee, desire the Government to chalk out a gas pricing and utilization policy

incorporating sufficient incentives for E&P companies and at the same time adequately addressing the

concerns of the main consumers, i.e. the fertilizer and power industries. In this connection, the

Committee would like the Government to make appropriate changes in the Production Sharing

Contracts of the future NELP rounds so as to allocate some quantity of natural gas from new finds to

power and fertilizer industries. Besides, the Government should also consider prescribing a minimum

floor price to protect its revenue in terms of profit petroleum and a ceiling price to protect the

consumer interest.

The Committee further understand that the pricing of gas to be produced from the KG basin D-6 block is

yet to be finalized. They hope that the Government would give due weightage to all stakeholders such

as the producer, consumer, concerned State Government, etc., while deciding on the pricing issue and

settle the issue at an early date.

IGL gets marketing rights for CNG in Delhi

http://www.hindu.com/2009/01/07/stories/2009010753831000.htm

The Hindu Wednesday, Jan 07, 2009

Sujay Mehdudia

Company will face no competition in marketing of gas for three years

Will have monopoly over the pipeline network in the city for 25 years

NEW DELHI: Putting an end to a bitter controversy over the legality of Indraprastha Gas Limited’s

operations in Delhi, the Petroleum and Natural Gas Regulatory Board has finally given IGL an exclusive

period for operating retail business of eco-friendly Compressed Natural Gas (CNG) distribution to

automobiles and Piped Natural Gas (PNG) to households.

In its order dated January 1, the Board, which had questioned the legality of operations of the 10-year

old IGL, has given the company a three-year exclusive period of operation in Delhi. “The company will

face no competition in marketing of gas for three years and will have monopoly over the pipeline

network in the city for 25 years,” official sources said.

Network extension

As per the mandate given by the oil regulator, IGL would expand its pipeline network to supply natural

gas to households in 21 new localities including Chandni Chowk, Najafgarh, Tuglakabad and Karol Bagh

by 2011-12 and add 35,000 households every year.

In a statement issued here, IGL said the Board had accepted that IGL is the only authorised entity for

implementation of the Delhi city gas distribution project for supply of CNG to the transport sector and

piped natural gas to domestic kitchens in the Capital. The company plans to take the number of

domestic consumers up to 237,000 by 2011-12 from the current 132,000 while the length of the steel

pipeline in Delhi is proposed to be increased from current the 824 inch km to 1,100 inch km.

The nod from the regulatory body would give a further fillip to IGL’s preparations for the

Commonwealth Games-2010 with plans for adding another 50 new CNG dispensing stations in the next

two years. IGL said plans are afoot now to expand shortly to neighbouring towns such as Noida and

Greater Noida where infrastructure has already been laid.

The Board, however, has not authorised IGL for operations in these two towns, where private firms like

Adani Energy too are interested in city gas operations. IGL said all CNG stations in Delhi would be given a

vibrant new look before the Commonwealth Games-2010.

The company said it is on the fast track to increase its infrastructure to cope with the rising demand. IGL

aims to set up 50 more CNG stations in Delhi before the Commonwealth Games.

“Fast track expansion in compression capacity is being undertaken by installation of electric-driven

compressors. The capacity has already been increased substantially in the last six months which has led

to a reduction in waiting time for CNG fuelling,” it added.

The controversial battle over natural gas

http://in.rediff.com/money/2009/jan/15the-controversial-battle-over-natural-gas.htm

Latha Jishnu January 15, 2009

The problem has been festering for decades, one of those critical issues which have pitted the states

against the Centre and set off a long, litigious trail. It is an issue involving entrenched public sector oil

and gas companies, aggressive private enterprises prepared to take a risk despite the lack of legal

sanction and state governments determined to cock a snook at Delhi.

Caught up in the dispute is the larger issue of controlling environmental pollution in the major

metropolitan cities. All these issues hinge on a simple issue: Natural gas and who has the authority to

legislate on this vital natural resource.

As with all such matters there is a long and muddled history to it -- the legacy of colonial business

interests, blurred lines between state and Central control and bureaucratic apathy in the ministry of

petroleum and natural gas (MoPNG) that allowed the issue to become a hot potato.

The ownership and legislative control over natural gas first became a contested issue in the early 1990s

when the initial offshore gas discoveries and the laying of the first gas pipeline, the HBJ line, made it

easier and cheaper for industry and business in some parts of the country to run on natural gas. But long

before this, more than half a dozen city gas networks had been in operation -- the oldest in Calcutta (as

it was then known) dates to 1880 -- in parts of Assam, Gujarat and Bombay.

These were run by the public sector oil and gas companies while the one in Vadodara, started in 1972,

was operated by the municipal corporation. Nobody, it appeared, had a problem with these operations.

The genesis of the dispute that continues to hang over the gas sector lies in the writ petitions filed in

1991 by businessmen and the Association of Natural Gas Consuming Industries of Gujarat against the

Union of India and Oil and Natural Gas Commission challenging the competence of the Union to make

laws on 'gas and gas works.'

It is the fallout of this case that has a significant bearing on what is indisputably the hottest business

prospect in India: the setting up of city gas distribution networks across the length and breadth of the

country and the supply of compressed natural gas to vehicular traffic in major cities. This is partly the

result of a Supreme Court directive to state governments to clean up their heavily-polluted cities, and it

is interesting to see how the famous 1985 writ petition filed by crusading Delhi lawyer M C Mehta

against environmental pollution has now tied into the issue of jurisdiction over gas.

It was during the pendency of the Gujarat businessmen's writ petitions that the Gujarat legislature

passed a law regulating the supply, transmission and distribution of gas. It was aimed at promoting the

use of gas in the state, by both industry and domestic consumers.

That's when the Centre saw red and questioned the legislative competence of the state to pass such a

law in a presidential reference in 2001. It took the Supreme Court four years to give its opinion but a

five-member constitutional bench of the Supreme Court was unequivocal in declaring that only the

Union government had the authority to legislate on natural gas including liquefied natural gas. The

states, said the bench, had no competence to legislate on this natural resource and struck down the

Gujarat law as ultra vires of the Constitution.

That was in March 2004.

Yet, within months of this order, state governments in Gujarat, Haryana and Uttar Pradesh among

others were merrily granting permission to set up CGD networks and CNG stations and chopping and

changing the parties to whom approvals were given. In the case of Adani Energy, permission was given

to set up CGD networks in Lucknow and other places in Uttar Pradesh by the Mulayam Singh

government, revoked by the subsequent chief minister Mayawati and then cleared again by her, raising

questions not only about the constitutional validity but also about the criteria used to grant approvals.

In Haryana, the government granted exclusive rights to Gurgaon, Faridabad, Sonipat and Panipat, first to

Haryana City Gas Distribution and then to AEL. Protests from the MoPNG, too, had no effect. A letter

from the ministry to the chief secretary of Haryana pointing out that states had no jurisdiction on

natural gas were coolly ignored.

This had forced the Ministry of Petroleum and Natural Gas to remind the Supreme Court about the

unambiguous opinion it had given on presidential reference and ask it to remind the states that only the

Union government had exclusive powers on natural gas. In a special application filed early in 2007, the

Centre urged the court to restrain all state governments from granting approvals or formulating policy

on natural gas. It had also asked the court to declare the approvals given since then as null and void.

The worry here is that the ad hoc and non-transparent method in which these approvals have been

given by the states would hinder uniform regulations and standards that are necessary for the equitable

distribution of natural gas through trunk pipelines. In other words, limited commercial interests would

gain precedence over projects of national relevance.

Ministry sources have pointed out that administered price mechanism or fixed-price gas was allotted by

the government to Indraprastha Gas for supply of piped gas and CNG to the national capital territory of

Delhi only after the apex court had adjudicated on the presidential reference. IGL was set up as a joint

venture of the state-owned GAIL India, the public sector BPCL and the government of Delhi under a

Supreme Court directive ordering the cleaning up of the heavily polluted National Capital Region. None

of the companies has been allocated any gas although they had claimed they could source it from

different sources.

The Supreme Court has not acted on the MoPNG petition so far. Instead, GAIL and IGL have been

ordered to provide connectivity and gas to AEL and HCGDL. IGL has been asked to provide 0.25

MMSCMD of its 0.7 MMSCMD allocation from the ministry to each of the two private companies in

Faridabad and Gurgaon as an interim measure. Gas, in fact, is being supplied in cascades to the private

companies, which is a vastly expensive proposition since the pipeline infrastructure has not been found

to be of standard quality and is now being supervised by GAIL.

Industry analysts say it is curious how states have been allowed to flout the constitutional directive, and

worse, to give approvals to companies without any gas allocation. These are issues which have been

highlighted once again in the court.

In its latest report, which was taken on board by the Supreme Court last Friday, the Environment

Pollution Control Authority for the National Capital Region has asked the court to not only endorse the

Centre as the sole authority to decide CNG distribution but also its authorisation of IGL as the agency

charged with the distribution of this clean fuel in the entire NCR.

Powered by Business Standard

Gas and the city Ashish Gupta 24 Jan 2009 Outlok Business > Cover Story > City Gas

http://business.outlookindia.com/inner.aspx?articleid=2427&editionid=65&catgid=1&subcatgid=1083

Companies want to change the way urban India cooks, travels and produces goods. This is the new

business opportunity in natural gas distribution

Sumitra Singh, all of 60 years, finds it hard to believe. In the village she grew up in North Bihar, they still

cook with firewood and dried cow dung. When she got married and first came to the city in 1970, she

used a kerosene stove. A year later, she was introduced to a gas cylinder—and high-handed gas agencies

and month-long waiting periods. The switch to a double-cylinder system made life easier. "But this, this

is unbelievable," she smiles, waving a piece of paper, at her DDA flat in Alaknanda, a Delhi suburb. The

piece of paper is an application form of the Indraprastha Gas Limited (IGL). For a deposit of Rs 5,000,

and monthly usage-based charges, she can get rid of her two gas cylinders, her gas agency and its

delivery boys for good. IGL is promising to send her cooking gas through a pipe connected to her gas

stove, 24x7x365, similar to the way she gets electricity. Piped gas, they call it, and it is derived from

something called natural gas. She will be billed monthly, the way she is billed for electricity. In fact, she

will pay less than what she pays today: against Rs 305 for a 14.2 kg cylinder, she will pay about Rs 200

for the same quantity.

In July 2008, about 775,000 households in 19 cities across India were receiving piped gas. Those

numbers are set to explode in the next five years—about 70 cities and 30 million households. Bids are

being invited for distribution of natural gas in cities, and the first award of six cities should happen in

March. Every company of any significance in the gas business is interested—biggies like GAIL and

Reliance Industries, mid-level players like Gujarat Gas, fringe players like Sabarmati Gas and Haryana

Gas. At a minimum investment of Rs 200 crore per city, city gas distribution (CGD) could see an

investment of Rs 14,000 crore over the next five years.

Gas And Effect

Good riddance to cylinders and government subsidies. Households will get gas through pipes, 24x7x365,

and monthly bills. Against Rs 305 for a 14.2 kg LPG cylinder, they will pay about Rs 200 for the same

quantity.

At 42 paise per km, the running cost of natural gas is one-third of petrol. More gas coming in will spur

gas stations and demand for vehicles running on CNG, especially in public transportation. Result: cleaner

air.

Industries like glass and ceramics use fuels like furnace oil and naphtha in production. Gas delivered to

their doorstep will be a cheaper, cleaner and an easier substitute. Likewise, for running power

generators.

Fuel for thought

It’s not just households like that of Singh that will see a change in a facet of their lives because of gas

gushing through a network of pipes into towns and cities. It will impact owners of vehicles and small

factories. It will impact government finances. It will impact citizens. It will change the way we cook, the

way we produce goods, the way we commute, the air we breathe. All for the better.

Driving this change is the fuel that is the cheapest and cleanest of them all: natural gas. It’s a superior

alternative to the five city fuels—petrol, diesel, LPG (liquefied petroleum gas), furnace oil and naphtha—

and that substitution is what players in the CGD business are eyeing. They are looking to transport this

gas from oil and gas fields in the Arabian Sea and Bay of Bengal to houses, vehicles and factories across

the length and breadth of India.

This gas is pumped out of fields and transported through thick pipelines to city gas stations. From city

gas stations, it moves through thinner pipelines to houses, petrol pumps and industrial units. For

houses, it is called piped gas, and serves as a substitute for LPG (a cooking medium based on crude oil).

For gas stations, it is called compressed natural gas (CNG), and is an alternative to petrol and diesel. For

industrial units, it is called industrial gas, and is a replacement for diesel, naphtha and furnace oil.

All three—piped gas, CNG and industrial gas—are natural gas. The difference in nomenclature arises

because of the pressure at which they are transported. Since only a small amount of piped gas is needed

for cooking, the gas pressure in the pipelines going to houses is reduced greatly. Industrial units, by

comparison, need large quantities, and so the gas is transported at high pressure. CNG is gas that is

compressed to fit into the small cylinders in vehicles.

Not a pipedream anymore

Progressively, on the back of a formidable pipeline network and players with giant-sized ambition, cities

and towns will use more and more of this fuel. This change hasn’t come about overnight. It has been in

the making for several years. So far, the pieces were either missing or were not large enough to make a

difference to a nation. But in the last two to three years, they have acquired scale and momentum, and

are moving in unison. The story of city gas distribution (CGD) revolves around five large pieces.

The first piece is a manifold increase in gas output. India has seen a lot of gas finds in the past few years.

Reliance Industries, ONGC and Gujarat State Petroleum Corporation (GSPC) have struck gas in the

Krishna-Godavari Basin off Andhra Pradesh. ONGC has found some in the Mahanadi Basin adjoining

Orissa, in addition to what it is already pumping from Mumbai High and Ankleshwar off the Western

Coast. Cairn Energy has fields off Gujarat and Andhra Pradesh.

The spike in gas production is mostly the fruit of the New Exploration Licensing Policy (NELP). Introduced

in 1997, it essentially made more oil and gas fields available for exploration, and allowed for greater

private sector participation. Some industry veterans like UD Choubey, Chairman and Managing Director,

GAIL, the country’s largest gas transmission company, believe the incremental output can convert the

nation from a gas-deficit economy to a gas-surplus economy by 2011-12. (Read Waiting for 2012)

Nitin Shukla CEO, Hazira Group of Industries, Shell ‘As long as gas can replace liquid fuel, there is an

opportunity for players and gas from all sources’

In 2008, against a demand of 180 million metric standard cubic metres per day (mmscmd), the supply

was just 114 million mmscmd (including imported liquefied natural gas)—a shortfall of 36%. Says

Choubey: "The output from domestic gas and imported LNG could touch 280 million mmscmd, against

the country’s then total requirement of 256 mmscmd by 2011-12." Obviously, if all that gas is being

pumped out, it has to be used.

So, demand has to increase, and sustain. That’s where the second piece comes into the picture:

consumers. Big industrial consumers—fertiliser, petrochemical and power plants—were always there,

and will remain. For stable, incremental growth, they need to be supplemented by smaller consumers.

These are households, vehicle owners of all classes like individuals, private taxi operators and state

transportation corporations, and factories. Says Choubey: "A city with a population of 100,000 requires

about 60,000 mmscmd of gas. That’s just 3% of what a single fertiliser plant needs every day (2 million

mmscmd) and 2% of what a power plant needs every day (3 million mmscmd)." In other words,

economic viability demands that many cities and towns be brought into the gas fold. Once they are, they

are an enduring source of demand.

Bringing them into the gas fold is the task of the third and fourth pieces: pipeline and players. Gas flows

through pipelines, from fields to trunk pipelines to feeder pipelines to cities and, finally, to households

and gas stations. A lot of ground has to be dug up, which is always a pain in a functional city. The task

would have been easier had CGD been incorporated into the city master plan, as is the case in

developed countries. Still, the linkages are happening—and happening fast.

The backbone of this pipeline system is a national grid that circumnavigates and criss-crosses the

country, and whose size is increasing by the day. GAIL has completed 7,000 km and is aiming for 13,000

km by 2012; Reliance has 1,400 km and is waiting for government clearance for another 3,000 km (the

country’s highway network has a length of 66,000 km). These are the trunk pipelines, from where

everything else flows (See graphic: Joining The Dots). Areas that fall within a radius of 50 km are the

immediate catchment area. Once those areas are brought under the gas net, the next 50 km is within

striking distance, and so on. As the pipeline network keeps expanding, so will the coverage of cities.

The urgency to expand the pipeline network is more now because of all the gas that is waiting to be

pumped out. Producers like ONGC, Reliance, British Gas, Cairn and GSPC want the pipelines. As do

distributors like GAIL, Reliance and the scores of smaller, largely regional, players who smell the

opportunity to build, for all practical purposes, a captive demand base in the cities. Says Rajesh Vedvyas,

Managing Director, Indraprastha Gas, the distributor in Delhi: "The customer wants it, society wants it,

the government wants it. For the first time, we are in a position to service those needs.’’

Opening up cities to gas distribution is akin to bringing in a utility service. As in water and power, the

number of players in a city has to be limited. That means several aspects of the business—like bidding,

licensing, pricing and monitoring—has to regulated. The regulator is the final piece, and that fell into

place in October 2007, with the setting up of the five-member Petroleum and Natural Gas Regulatory

Board (PNGRB). Its mandate is to "ensure uninterrupted and adequate supply of petroleum products

and natural gas to all parts of the country". (Read Power Tussle)

Picking the players

Shaleen Sharma, Managing Director, Gujarat Gas ‘The challenge is to have a well-designed pipeline

network that can handle many pressure settings’

The creation of PNGRB has paved the way for players to think business and think big. Although it is

struggling to establish its independent identity (Read Power Tussle), PNGRB has brought clarity to many

contentious issues. It is the entity that hands out CGD licences. The players can be classified into two:

those who own the pipeline (today, GAIL is the biggest, followed by Reliance) and those who distribute

the gas (besides GAIL and Reliance, Indraprastha Gas, Gujarat Gas and GSPC, among many others).

There’s a step-wise competitive bidding process for the licences. To start with, companies submit an

expression of interest (EOI) to PNGRB for the cities they are interested in. If there’s sufficient interest in

a city, PNGRB calls for bids.

Bidders have to meet financial (net worth-related) and technical (experience) parameters to submit

bids. PNGRB evaluates the bids on four counts: at what price will the company supply gas (40%

weightage), how many households will it connect in the first three or five years (30% weightage), what is

the length of the pipeline network it will lay (20% weightage), what will be its compression (decreasing

or increasing pressure) charges (10% weightage).

In the first phase, CGD in six cities is up for grabs: Kakinada (Andhra Pradesh), Kota (Rajasthan), Sonipat

(Haryana), Mathura and Meerut (Uttar Pradesh), and Dewas (Madhya Pradesh). The bids close in

February and the winners will be announced in March. Meanwhile, as on November 24, the regulator

had received EOIs from interested players for 62 cities in 13 states and two union territories (See

graphic: Joining The Dots); this number has since increased to 77.

PNGRB is targeting CGD bidding in 200 cities by 2012. For most cities, it will be a head to head contest

between Reliance and GAIL (Read Full Force Gail). Both have bid for all six cities available in phase-I. In

the second phase, Reliance has shown interest in 61 cities; GAIL in 30, though it could end up bidding for

more.

Pipeline players have a 25-year exclusivity period, which can be extended by 10 years if they meet terms

and conditions. They are assured of a 14% return on capital employed, which is factored into the gas and

transportation pricing). New CGD players have an exclusivity of five years; existing players, three years.

"It’s not long enough," says Vedvyas of IGL. "Gas trading profits may not be sufficient to offset possible

losses in the pipeline business because of a delayed scale-up in volumes."

Once the exclusivity period ends, more players can be allowed in. However, incumbents with a sizeable

CNG and piped gas customer base will be protected by the entry barriers they have built up in the form

of relationships with oil marketing PSUs and the fair number of CNG stations owned by them. Says

Shaleen Sharma, Managing Director, Gujarat Gas: "The challenge in city gas distribution is to maintain an

optimally designed pipeline network of high quality, one which is capable of handling a wide band of

pressure settings."

At a minimum of Rs 200 crore per city, the city gas distribution business could see an investment of Rs

14,000 crore till 2011-12

Gains in the pipeline

Rajesh Vedvyas Managing Director, Indraprastha Gas ‘The exclusivity period is not long enough. A delay

in scale up of volumes can cause us losses’

Gas prices vary from city to city, and are based on three major components. One, whether the gas is

from pre-NELP or NELP blocks. The price of pre-NELP gas is fixed by the government. NELP gas, by

comparison, is market-determined, and about thrice as expensive. Most of the pre-NELP gas belongs to

ONGC and Oil India, which mostly give to fellow PSU, GAIL. So, all else remaining equal, initially, the gas

supplied by new players will be more expensive than that supplied by an established player like GAIL.

Two, distance from end consumers—the greater the distance the gas has to travel, the higher the tariff.

Three, local taxes, which vary from state to state. In Ahmedabad, the value-added tax (VAT) rate is 15%;

in Delhi, 4%. So, CNG costs Rs 19 per kg in Delhi, but Rs 28.50 per kg in Ahmedabad. Still, even with

market-determined gas prices, long transportation distances and high tax rates, gas is a cheaper fuel for

vehicles than petrol or diesel, and a cheaper cooking medium than LPG; and it’s also the cleanest (See

table: The Cheapest And The Cleanest).

Its untapped potential is huge. As of July 2008, according to the Ministry of Petroleum and Natural Gas,

piped gas was being supplied to about 775,000 households, 1,287 commercial and 64 industrial

customers, and there were 398 CNG stations in the country. To put this in perspective, there are 11.6

million households in the four metros alone, each a potential customer for piped gas. The oil marketing

PSUs, who sell LPG currently, don’t mind losing them, as they are forced to sell it below cost price, and

are losing money on it. Likewise, at 32,500, the number of petrol pumps in the country are a multiple of

CNG stations.

As a business, CGD in India has a high-gestation period—in most cases, longer than the exclusivity

period—because of the high cost of pipelines, the payback from which happens over several years. Says

BS Negi, board member, PNRGB: "Each city will require an investment of $50-200 million on pipelines."

The distributor will have to invest in city gas stations (where the gas pressure can be regulated) and CNG

pumps. The other challenge of CGD, says Sharma of Gujarat Gas is maintenance of pipeline networks

and round-the clock services to customers. "Even a minor mishap in the pipeline system can place a

large number of people and property at considerable risk," he says.

The CGD story is just beginning. Ajay Arora, Partner, Ernst and Young, says the expiry of the ‘gas

utilisation policy’ in 2012 will make more gas available for cities (Read Waiting For 2012). "After that, it

can really take off,’’ he says. Nitin Shukla, Chief Executive Officer, Hazira Group of Industries, Shell, says

India needs to emulate the Gujarat experience, where gas forms 20% of the total energy basket

compared to the all-India figure of 9%. "As long as gas can replace the last drop of liquid fuel in the

country, there is an opportunity for players and gas from all sources—APM gas, other domestic gas,

even LNG. After all, it will make for a clean, green and more competitive India," he says.

The urgency to expand the pipeline network is more now because of all the gas that is waiting to be

pumped out from the fields

Waiting for 2012

Insufficient gas for cities may slow expansion

Ashish Gupta

LOW DOWN: City gas may lose out to fertiliser, petrochem and power plants

For all the intentions of producers and distributors to ramp up city gas distribution (CGD) quickly, they

might not manage to in the next three to five years. Reason: existing government policy might not make

available enough gas for distribution in cities.

India has always been a gas-deficit country. Today, against a demand of 180 million metric standard

cubic metres per day (mmscmd), the supply is just 114 million mmscmd—a shortfall of 36%. Competing

end-users—like fertiliser units, power plants, LPG and petrochemical producers, and city gas

distributors—have always lobbied with the government for a larger share of the cleanest and cheapest

fuel.

In order to prioritise gas usage, the government recently announced a ‘gas utilisation policy’, which

outlines how the output from the new gas finds under the New Exploration Licensing Policy (NELP) is to

be distributed till 2012 among various users. The policy gives priority to ‘existing projects’ over

‘greenfield projects’. In existing projects, of the six user sets, CGD is ranked fourth, after fertiliser, LPG

and petrochemical, and power plants. In other words, in gas availability, ongoing expansion in these

industries will take precedence over CGD. Even in greenfield projects, which is where the new CGD

projects slot in, CGD is only the third priority.

Says RK Batra, Fellow, The Energy Research Institute (TERI): "If the unmet demand of other sectors has

to be met first, CGD players will have little gas left." A recent ICRA report pegs the present unmet gas

demand of sectors that take precedence over CGD at 90 mmscmd. "This is marginally more than the 85

mmscmd of incremental gas that will be available. CGD companies may, at best, get only a small

quantity of gas," says the report.

In the gas utilisation policy, applicable till 2012, city gas distribution gets low priority

The Petroleum and Natural Gas Regulatory Board (PNGRB) has asked the government to change the

policy so as to allow for a fast CGD rollout, as gas is cheap (and can replace subsidised LPG) and clean.

The other option is liquefied natural gas (LNG) imports.

LNG is more expensive as it is gas imported in liquid form, which is converted into the gaseous form

again, and hence involves an additional charge. Although the CGD segment can absorb expensive LNG

where it competes against high-cost fuels like petrol and naphtha, LNG can’t be the base fuel. That will

remain natural gas. Come 2012, domestic gas supply is expected to catch up with demand, and there

should be enough for all. But till then, if the priority allocation continues, the CGD rollout may not gain

the desired momentum.

Power tussle

The government has set up a regulator, but hasn’t empowered it fully

Ashish Gupta

Gas has always been a central subject. But when it was a fuel of small volumes, some states, notably

Gujarat, distributed licences for CGD, and the Centre didn’t object. But as the stakes increased, the

Centre woke up. After some years of sparring with states, a Supreme Court ruling reaffirmed the

Centre’s status as the sole regulator of the gas business. Thus was set up the Petroleum and Natural Gas

Regulatory Board (PNGRB). Still, the turf wars continue; only the players have changed. Now, it is

between the Centre and PNGRB, between PNGRB and state players, and within PNGRB itself.

On some areas where it should have jurisdiction, PNGRB is being overruled by the Centre. The crux of its

fight with the Centre is the latter’s failure to notify a crucial section in the PNGRB Act. Section 16 says

that no entity can lay or operate a pipeline or city gas distribution, or expand its network, without the

permission of the regulator. Further, Section 17, which has been notified, says that in the absence of

PNGRB directives, the Centre has the final word. And it is using that word much too often.

PNGRB asked all state licencees to furnish details of their activities and their original authorisation letter

within six months. Not a single state licencee has replied. Things came to a pass when the board stopped

Indraprastha Gas from expanding. But the Centre overruled the board. In other words, existing licencees

can continue doing business even without conforming to PNGRB norms.

It’s ironical that, on the one hand, PNGRB is fighting for its independence. And, on the other, the five-

member board, in September, gave a carte blanche to its chairman to take several decisions relating to

gas distribution without consulting the five-member board. These include some critical decisions like

evaluating a bidder’s technical competence. The suspension of collective decision-making means

Chairman Labayendu Mansingh can decide the fate of a company. That’s too much power to give to one

person.

Full force Gail

Reliance is looking to storm GAIL’s bastion. GAIL is not cowing down. An intriguing battle lies ahead in

city gas distribution

Ashish Gupta

The challenger: Reliance CMD Mukesh Ambani has gas and gumption

Any business Mukesh Ambani gets into, he does so with the aim of being number one. So, he builds

scale, he moves quickly and executes supremely, he plays the price card and hustles the competition, he

redefines the rules of the game. After petrochemicals, refineries, telecom and retail, Mukesh is looking

to change the rules in the business of distribution of natural gas in cities, or city gas distribution (CGD).

The moves of his flagship, Reliance Industries, over the past year or so are vintage Mukesh: scale, speed

and studied silence, intended to turn the competition stiff.

But instead of turning stiff, the competition is raising the pitch. The competition in this case, whose

party Mukesh wants to gatecrash, is India’s oldest and largest gas transmission company, GAIL. And the

man raising the pitch is its 59-year-old Chairman and Managing Director UD Choubey, who has been

"obsessed with marketing natural gas" for the last 20 years. "GAIL has dominated the natural gas sector

and city gas distribution business for decades, and is likely to do so for decades. It is for the others to

play catch-up with us, not the other way around," he retorts.

Choubey has a point. In gas distribution, GAIL is the seasoned veteran, Reliance the upstart. GAIL has

been in the gas distribution business since 1987, and has a market share of 79% in gas transmission and

70% in gas marketing. The public sector undertaking pioneered the concept of CGD in 1972, and is a

player in nine of the 19 cities that have CGD. Its pipeline network of 7,000 km is five times that of

Reliance. And in the business of CGD—which will bloom in the next decade or so, with licences for about

200 cities likely to be handed out (Read Gas and the City)—its ambitions are nothing less than that of

Reliance.

Today, GAIL gets 73% of its gas at half the rate of Reliance. But this advantage will be gone in 10-12

years. Not having its own gas then may put it on the backfoot

But then, this is Reliance, that is GAIL. Private sector versus public sector. Revenues of Rs 1,39,269 crore

versus Rs 18,008 crore. Net profit of Rs 15,261 crore versus Rs 2,601 crore. Net worth of Rs 79,766 crore

versus Rs 13,005 crore. Annualised revenue growth of 20.4% versus 10.7% in the last five years. Gas

supplies versus pipeline network. Mukesh Ambani versus UD Choubey.

It’s a straight fight between Reliance and GAIL in CGD, and it promises to be an intriguing one. Intriguing,

because both companies are studies in contrast. Intriguing, because one’s strength is the other’s

weakness, and vice versa. Intriguing, because even as they compete, they will also have to collaborate

with each other. Intriguing, because GAIL is ahead of Reliance today, but unless it fortifies some apsects

of its business, it could find itself on the backfoot in eight to 10 years.

Burning ambition

The CGD race is just beginning. Both companies have bid for the six cities that will be handed out for

distribution in March. And, chances are, both will bid for nearly every city that is put up by the

Petroleum and Natural Gas Regulatory Board (PNGRB), the regulator. The stakes are high. CGD has a

marketing exclusivity of five years in the new cities, which is sufficient time to build strong entry

barriers.

So far, in its existing CGD ventures, GAIL, with a stake of 22.5-35%, has been content to play second

fiddle to its local partner. But now, it wants to be the ‘the player’. The company has finalised plans to bid

for 230 cities, says Choubey. "We have compiled data on these cities, including nitty-gritty like number

of households, vehicles, and small- and medium-sized industries." Reliance, on the other hand, made its

sweeping intent known when it gave a list of 63 cities it was interested in to the PNGRB in October—the

most given by any player. Scale, speed and silence.

Once there is sufficient interest in a city and once gas linkages to it are feasible, PNGRB invites bids for it.

What Reliance is doing, subtly, is to rush the competition. "If bids are called, companies have to submit

their technical and financial bids within 120 days. Reliance has already done its feasibility for these

cities, others will still have to," says an analyst with a leading consulting firm. By comparison, GAIL has

put in an expression of interest with PNGRB for 30 cities, though Choubey says it will bid for more.

There are other players, ranging from single-city distributors to those with a state-wide presence, who

too are looking to expand. Prominent in the second lot are Gujarat State Petroleum Corporation (GSPC)

and Gujarat Gas. "We are going to cover 200 cities by 2015," says DJ Pandian, Managing Director of

state-owned GSPC, which currently has a presence in 12 cities in Gujarat, and is looking to eventually

cross over to neighbouring Maharashtra, Madhya Pradesh and Rajasthan. Similarly, Indraprastha Gas

Limited (IGL), the distributor in Delhi, is expanding its CGD network across the National Capital Region

(NCR) to Gurgaon, Greater Noida and Faridabad. "We are also keen to bid for cities like Sonipat, Meerut,

Mathura and Kota,’’ says Rajesh Vedvyas, Managing Director, IGL.

Limited by reach, size, gas supplies or ambition, the expansion plans in CGD of all other players are

centred around a city or a region. But for Reliance and GAIL, it’s about all of India, and they are ready to

go wherever the pipelines go.

Contrasting strategies

THE VETERAN: GAIL CMD UD Choubey has experience and pipelines on his side

The winners in the CGD business, say analysts, will be the integrated players—those who have an

assured supply of gas and a pipeline network to transport it. Neither GAIL nor Reliance is integrated

today, though Reliance is closer. Interestingly, each is strong in the area the other is not—GAIL in

pipelines, Reliance in gas ownership. In other words, GAIL’s strength is Reliance’s weakness, and

Reliance’s strength is GAIL’s weakness. This adds a new dimension to this battle as, purely on the

business front, Reliance narrows the gap to GAIL.

That’s because it’s easier to lay down pipelines than strike gas. GAIL has a network of about 7,000 km,

with plans to increase it to 13,000 km by 2012. By comparison, Reliance has a pipeline length of 2,000

km, with a target of 3,000 km by 2012. That means it has to use GAIL’s pipelines in several places. That’s

not a problem, as companies can use pipelines of their competitors by paying a fixed carriage fee. By

law, all pipeline players have to reserve 33% capacity in their pipelines to transport gas of other

companies. In other words, even without adequate pipelines of its own, the downside for Reliance is

limited.

However, Reliance doesn’t have to reserve gas for GAIL, but it probably will in return for using GAIL’s

pipelines; it has already signed an MoU to allow GAIL some of its Krishna-Godavari (KG) Basin gas. So,

the upside for Reliance from owning gas reserves is huge. In its D-6 field in the KG Basin, Reliance has

reserves of about 11.5 trillion cubic feet. This is the biggest gas find in India after Bombay High in 1974.

In one shot, it will make Reliance the largest gas producer in India, with the D-6 gas alone likely to

account for about 25% of the country’s needs over the next 10 years at least. Further, Reliance is

exploring more.

GAIL, by comparison, generates no gas by itself. It’s not into exploration or production, it’s only into

transmission and distribution. It buys most of its gas from fellow PSUs like ONGC and Oil India, and a

small amount from private players like Cairn Energy. In anticipation of the coming boom in CGD,

Choubey’s appointment diary is choc-a-bloc with meetings with gas producers, along with existing and

new CGD players for leasing out its pipelines. The PSU connection helps. GAIL will get all the gas

produced by ONGC from its Western fields, as well as the new gas that will start flowing from the KG

and Mahanadi basins.

For now, GAIL is fine—in fact, better than Reliance—on the gas supply front. Most of the gas being

supplied by ONGC and Oil India to it is from blocks given out before the New Exploration Licensing Policy

(NELP) came into force in 1997. The price of this gas is fixed by the government, through the

administered pricing mechanism (APM). As a result, it is very cheap—$1.7-2 per million metric British

thermal units (mmbtu), less than half the $4.24 from the Reliance fields or $4.74 per mmbtu currently

available from Panna-Mukta-Tapti field. And it is much cheaper than imported liquefied natural gas

(LNG), whose prices vary from $9-24 mmbtu depending on crude prices.

At present, GAIL meets 73% of its requirements through APM gas, which will enable it to price gas lower

than Reliance. This is critical because, in evaluating CGD bids, gas pricing gets 40% weightage, the

maximum of the four parameters. Till such time as GAIL gets cheap APM gas, it can undercut Reliance.

However, the share of APM gas in GAIL’s supplies is expected to fall to 27% after 10-12 years, as GAIL’s

needs will increase and production from ONGC and Oil India fields will dip because of age. It will then

have to buy from competitors like Reliance or depend on crude prices (for LNG imports). By that time,

Reliance’s D-6 fields would be pumping in their full glory, those fields would be suitably depreciated,

thus increasing its profitability.

So, though GAIL is secure today, unless it beefs up its gas supplies at good prices, it could lose some

competitive advantage to Reliance in the coming years. The urgency to lock gas supplies has even led

GAIL into exploration for the first time—it bagged about 30 blocks through competitive bidding, which it

is likely to take up with a partner.

In the pipeline

On the pipeline front, though, GAIL has the advantage. The company plans to invest Rs 15,000 crore to

expand its carrying capacity from 150 million metric standard cubic metres per day (mmscmd) to 280

mmscmd by 2011-12. It will do so by laying new pipelines along new routes, adding pipelines along

existing routes and by increasing the compression in its pipelines. Says Choubey: "This will make GAIL

the preferred pipeline for gas producers on either coast." Its existing network gives it an advantage on

the cost front, as much of its network goes back a long way and is well-depreciated. "Our network

tariff—charges for the use of pipelines—will be much lower than our competitors," says Choubey.

GAIL is also better placed than Reliance to leverage relationships in the immediate future. "We can pick

up equity in ventures where gas producers have CGD licenses, or they can take equity in our business

where we are the licence holders," says Choubey. Nothing is ruled out, not even partnering Reliance.

"We are not untouchables," says Choubey, he says cryptically.

Reliance, on its part, is taking the fight to GAIL, and building trunk pipelines. The 1,400 km Kakinada-

Hyderabad-Ahmedabad pipeline, which will connect most cities in Andhra Pradesh and Gujarat, is

complete. Two more are awaiting government approval, namely to connect its KG Basin base to East

India (1,100 km Kakinada-Basudebnagar-Howrah pipeline) and South India (Kakinada-Chennai-Tuticorin-

Kochi).

Till now, the pipeline action was concentrated in the Western region, as gas was largely being pumped

out of Bombay High and because Gujarat was the state that sought this gas the most. Now, with so

much new gas looking for buyers and CGD ready to roll out across the country, both Reliance and GAIL

are also focussing on the unconnected areas.

Laying pipelines isn’t cheap, but Reliance can afford it. If there’s one company that has the pockets (it

has a net worth of Rs 79,766 crore), the reason (it will be the country’s largest gas producer) and the

gumption (well, it’s Mukesh, after all) to do so, it is Reliance. More than GAIL’s response, the pace of

Reliance’s expansion in the next few years, both in the pipeline and CGD business, will largely determine

whether today’s spirit of ‘cooperative competition’ turns to just ‘competition’ tomorrow. It’s easier to

lay pipelines than strike gas. Also, pipeline players have to reserve 33% capacity for others. Gas players

don’t have to return the favour

Haryana village the first to access piped gas

http://www.merinews.com/catFull.jsp?articleID=15711821

CJ: Chander Prakash, 23 Feb 2009

Village Dayalpur in district Faridabad of Haryana became the first village in the country where domestic

consumers can access piped supply of natural gas. The supply of natural gas would be extended to

Machhgar, Atali and Maujpur villages too.

THE HARYANA Chief Minister, Bhupinder Singh Hooda, launched the ambitious project. The Chief

Minister, who was on a day-long visit to Faridabad laid the foundation stone of many developmental

projects. He inaugurated a number of projects. These projects involve a total investment of Rs 946 crore.

He inaugurated Haryana’s first CNG station in Sector 24 of Faridabad. Both these projects, involving

piped supply of natural gas and CNG station, have been implemented by Adani Energy Limited. Hooda

said that Adani Energy would set up 12 CNG stations in Faridabad during the year. He laid the

foundation stone of a water supply scheme at village Budaina. It is to come up with the help of the

Central government and involves an outlay of Rs 493.49 crore. He laid the foundation stone of the

central co-operative bank building in Sector 20-A of Faridabad. It will come up over an area of 2700 sq

metre and cost Rs 5.17 crore. He inaugurated a pumping station, set up at a cost of Rs 6.5 crore, in

Sector 29.

Got Piped Gas Supply? Surrender Your LPG Cylinder

http://www.gurgaonscoop.com/story/2009/2/25/0269/47614

By Riti, Section GN Posted on Wed Feb 25, 2009 at 12:26:09 AM EST

Supply of subsidised LPG cylinders to households using piped natural gas (PNG) will soon stand

withdrawn.

Petroleum Minister Murli Deora told the Rajya Sabha on Tuesday that households getting cooking gas

through pipelines would have to surrender their LPG connections.

Currently supplies of piped gas are , restricted to three states Maharashtra, Delhi and Gujarat. However,

with increased availability of natural gas in the country the government plans to supply piped gas to

several other cities in the future."(The) government has conveyed approval to the public sector oil

marketing companies (OMCs) to formulate a scheme for surrendering LPG connection by a customer

who is being supplied piped natural gas," Deora said in a written reply to a question in Rajya Sabha.

Deora also said the LPG customer could keep the connection in 'safe custody', just in case he needed to

shift to an area where PNG was not available.The customer would then be able to avail of a new LPG

connection at the surrendered security deposit rate on a priority basis.

"OMCs are in the process of finalising the scheme," Deora said.Petroleum ministry officials said PNG

being supplied to customers was 18 per cent cheaper than the subsidised LPG. As against Rs 280, which

a consumer pays for a 14.2 kg LPG cylinder in Delhi, he would pay just Rs 246 for an equivalent amount

of gas flowing through a pipe into the house.

Therefore, if customers of piped natural gas were allowed to retain subsidised LPG connections, they

would enjoy a double subsidy and the taxpayers would have to bear the extra burden.However,

petroleum ministry officials clarified that if the customer of piped gas still needed LPG, he could be

supplied with the LPG cylinder, but at the market price, which is Rs 200 more than the price of a

subsidised LPG cylinder - Rs 305 in Delhi.

City gas project moves up in govt priority list

http://www.business-standard.com/india/news/city-gas-project-movesin-govt-priority-list/353479/

Ajay Modi / New Delhi March 31, 2009, 0:44 IST

To get priority over petrochemical and power projects in gas supply.

The government has promoted the city gas distribution (CGD) project, for which the first round of

authorisation is underway, to the second spot in its priority list for gas utlilisation. The first spot is held

by the fertiliser sector.

The empowered group of ministers (EGoM) has decided to allocate 5 million metric standard cubic

metre (mmscmd) gas to the project, to be supplied from Reliance Industries’ KG-D6 field.

However, the use of the allocated gas has been restricted to the domestic consumers and CNG pumps.

The CGD player cannot sell this gas to industrial units, according to sources. The Petroleum and Natural

Gas Regulatory Board (PNGRB) has requested the EGoM to review this clause. Prior to this, CGD figured

fourth in the country’s gas utilisation policy, after fertiliser, petrochemical and power projects.

“The upgradation in priority list means the government seems to have realised the positive economic

impact of city gas across the economy and the environment too. This also provides an incentive to the

potential bidders who will have an assured supply to certain extent,” said Rakesh Jain, General Manager

(Energy Division), Feedback Ventures.

However, the gas is expected to be remain surplus for the new CGD entities if the use of the allocated

quantity is limited to domestic PNG and CNG use, he added.

As consumers of LPG cylinders shift to piped natural gas, the government’s subsidy burden on the LPG

front is expected to come down. Moreover, the vehicles that use diesel/petrol will also shift to CNG,

with the subsidy element on them also expected to come down. But there should be a mechanism to

ensure that the gas supplied to domestic units is not diverted for commercial use as has been found in

case of domestic LPG cylinders, said Jain.

The grant of authorisation for CGD in six cities is likely to happen on March 31. Eight companies,

including Reliance Industries, GAIL, Cairn and Indian Oil Corporation, have bid for six towns for supplying

CNG to automobiles and piped natural gas to households for cooking purpose. The PNGRB has invited

bids for seven more cities. Gradually, the CGD network would cover most of the cities in the country.

“A decision has been taken to supply the first 40 mmscmd per day of gas to meet the shortfall in existing

gas-based urea plants, LPG plants and power plants,” Petroleum Minister Murli Deora said on February

18.

The KG basin is expected to begin production in April. According to the EGoM, production at the KG-D6

field is expected to reach a plateau of around 80 mmscmd by 2012.

HC issues notices to Centre, PNGRB

Date: 23/04/2009 Business Standard (New Delhi)

http://www.indiaenvironmentportal.org.in/content/hc-issues-notices-centre-pngrb

The Delhi High Court on Wednesday issued notices to the Centre and the Petroleum and Natural Gas

Regulatory Board on a petition filed by an NGO alleging that it did not have the authority to issue licence

to begin CNG retailing in cities.

OIL AND GAS High Demand, Low Supply

http://www.businessworld.in/index.php/Energy-Power/High-Demand-Low-Supply.html

IGL pays a heavy penalty as Delhi overshoots its gas quota

M. RAJENDRAN 25 April 2009 Source: Indraprastha Gas Limited

It is a curious situation. On one hand, the government limits supply of gas — Piped Natural Gas (PNG),

Compressed Natural Gas (CNG) — to Indraprastha Gas Limited (IGL), the sole supplier of PNG to

households and industries, and CNG to vehicles in the National Capital Region (NCR), which includes

besides New Delhi, the towns of Noida, Greater Noida, Faridabad, Gurgaon and Ghaziabad. On the other

hand, it pursues a policy that stimulates demand for gas, which then exceeds the supply. Since no other

supplier is permitted in this area, IGL ends up drawing more gas — from Gail India, another government-

promoted company — than the stipulated limit, and is saddled with a fine by the latter. Now, IGL has

gone back to its majority owner — the government, who else — to redress the situation.

IGL — a joint venture of Gail India, Bharat Petroleum Corporation (BPCL) and the Delhi government —

was permitted by government policy to draw for Delhi a maximum 2 mmscmd (million metric standard

cubic metres per day) of gas from Gail under the administered price mechanism (APM). But an increase

in demand has forced IGL to draw 0.7 mmscmd more than the agreed allocation limit, inviting overdraw

charges of Rs 30 crore from Gail. “The levy is seriously eroding our margins,” says Rajesh Vedvyas,

managing director of IGL, in a letter to the secretary of Ministry of Petroleum and Natural Gas and

senior officials.

Demand for CNG, in particular, increased after Delhi’s public transport fleet, autorickshaws and taxis

were asked to convert to CNG by the Supreme Court, and a significant number of private cars also

converted to CNG after petrol and diesel prices were raised last year.

In recent times, two other factors have contributed. One, lack of CNG stations in the other NCR towns —

of 170 CNG stations in the area, 164 are in Delhi. So, cars from neighbouring towns have very little

option but to refuel in Delhi. Besides, CNG in Delhi is cheaper than in neighbouring states (because of

additional state taxes) by more than Rs 3 per kg, which is an additional incentive for cars passing

through the capital to fill up there.

Moreover, as per a Supreme Court order, IGL also has to supply 0.25 mmscmd of natural gas to Adani

Energy in Faridabad and Haryana City Gas Distribution. So, that also eats into IGL’s already meagre quota

of gas for consumers.

IGL has now requested the government to merge its APM allocation for Delhi with NCR’s (2.0+0.7) with

effect from 1 July 2009, which the petroleum ministry is considering. But it will probably have to pay up

the fine nevertheless. “It relates to violation of an agreement, and sanctity of an agreement has to take

precedence over everything,” says a senior ministry official. Agrees Kumar Manish, CNG specialist and

associate director at consulting firm KPMG: “Tomorrow fertiliser sector or power plants could overdraw

and seek revocation.”

The solution, too, lies with the government. Having failed to convince other states to set up more CNG

stations, IGL’s only hope is if the government gives greater priority to it in allocation of gas (currently, it

is fourth in the priority list after fertiliser sector, liquefied natural gas and existing power plants). But

with election season on, that might take a while. And what if gas demand goes up in the meanwhile?

Well, either IGL overdraws more to supply gas to all who need it and pays a bigger fine in the bargain, or

a shortage results and the long queues at CNG filling stations make an uncomfortable return.

(Businessworld Issue Dated 27 April-04 May 2009)

India prepares for shift to gas-based economy

http://www.business-standard.com/india/news/india-prepares-for-shift-to-gas-based-

economy/356347/

Ranju Sarkar / New Delhi April 27, 2009, 1:02 IST

* In a few years, households receiving piped gas at home can use a fuel cell unit to produce power and

heat, which can also be used to chill homes during summer. The fuel cell unit also produces hydrogen,

which can be stored and used to run a motorcycle.

* Residents of an apartment or a colony can come together to buy a micro gas engine or a gas turbine

that can power an entire apartment, office complex or industrial estate.

* Once gas is available in a large number of cities, city buses could switch over to compressed natural

gas (CNG) as would many private cars. Malls, offices, hospitals and restaurants could be directly chilled

by gas, using vapour absorption chillers.

Welcome to India’s new gas economy. As gas supply increases and distribution infrastructure (cross-

country pipelines and piped gas in cities) falls in place, India will transit from an oil-based economy to a

gas-based one, says former head of the Directorate of Hydrocarbons, Avinash Chandra. He estimates

that India will find at least 200 trillion cubic feet of gas (tcf) from the country’s east coast alone.

Reliance Industries, which has started producing gas from its D6 block on the east coast, will produce 40

million cubic metres per day or 235,230 barrels of oil equivalent (BOE) a day by July, and double this by

end-2009. This will take care of the deficit, as there’s demand for 200 million cubic metres per day of gas

(1.2 million BOE per day) against available supplies of 110 million cubic metres per day (647,432 BOE per

day).

Two other companies, GSPC and ONGC, which also struck gas on the east coast, will bring in an

additional 40 million cubic metres per day by 2012. In India, the fertiliser and power sectors account for

80 per cent of the demand for gas, which will continue. But as gas supplies increase, supply to other

sectors like refining, petrochemicals, steel, industrial and city gas distribution (CGD) will increase

substantially.

There is a large unmet demand for power in India which will promote the use of gas for distributed

generation (like DG sets we see in office blocks). But gas engines can be costly: a micro turbine costs

around Rs 8 crore per mega watt. “Everyone need not buy a turbine. An industrial estate or a business

district can do so,’’ says an expert. 'Need not’ would read 'cannot’ or 'should not’ at these prices, even

for business districts. Price, as we shall see, is key, and we’re still waiting for technology innovation.

New gas-based applications are being developed. “The development of fuel cells can meet the total

energy requirement of a household through generation of power, hydrogen and hot water from gas,’’

says PMS Prasad, President & CEO (petroleum), Reliance Industries. Efforts are on to drive down the cost

of fuel cells. Similarly, there’s huge potential to use gas as CNG, which is cheaper and cleaner than liquid

fuels.

A network of pipelines is emerging in the country. Reliance has laid the East-West pipeline, which

connects to the HBJ and other regional networks. GAIL is expanding the HBJ network to the north and

east. Next, Reliance and GAIL will lay pipelines in the south and along the east coast. Thus, India will

have a quadrilateral of pipelines, all interconnected; a pipeline grid will further spur investments

upstream.

Similarly, piped gas would be available in many cities soon and the government plans to issue licences

for 74 Indian cities in phases. Once the city gas networks come up, gas could be sold to any new

industrial unit, malls, offices, vehicles or homes. Deepak Mahurkar, associate director,

PricewaterhouseCoopers, though feels it would take two-and-half years for a new city to get gas but

existing city gas networks can expand much earlier.

Equipment makers are warming to the opportunity. Maruti Suzuki will launch CNG variants for three or

four of its car models by 2010 or 2011. Many cars in Delhi and Mumbai already run on CNG. Tata Motors

will soon launch CNG variants for trucks and Tata Magic, the passenger vehicle built on the Tata Ace

platform. Its buses and small and light commercial vehicles are already available in CNG variants.

In Mumbai, geysers are available which run on gas. Thermax and Voltas make gas-fired vapour

absorption chillers, used in malls, restaurants, theatres and offices. The smallest of these is of 15 tonnes

of refrigeration (TR), which can cool an area of 1,900-2,000 sq ft. The initial costs of Rs 12-13 lakh for a

15 TR will be a deterrent, but it does cut operational energy costs by half.

Which brings us back to cost and pricing. Pinaki Bhaduri, head of strategy, Thermax, says the demand for

gas will be a function of its price. ‘‘If gas is priced at Rs 22 a kg, power generation doesn’t make sense. It

makes sense if the price is Rs 7-8 per kg. That will be a key driver for the growth of India’s gas economy.”

Latha Jishnu: The big city-gas dream

http://www.business-standard.com/india/news/latha-jishnubig-city-gas-dream/356821/

Latha Jishnu / New Delhi May 2, 2009, 0:51 IST

Policy air bubbles and implementation snags could block plans to connect India's cities to a clean fuel

grid. As India floats high on the prospects of a gas-based economy with supplies beginning to flow from

Reliance’s KG Basin, the general elation has been tempered by deflation on one front: City-gas

distribution (CGD) projects. The first tranche of six cities that was put to bid last year has returned a far

from exciting response and analysts say it reflects unease with the policy issues and the state of play in

the industry.

The official explanation is that the economic downturn had put a damper on proceedings because CGD

are capital-intensive projects that take at least five years to provide returns. Experts estimate that

investors would have to earmark close to Rs 500 crore per city, the conservative estimate being Rs 300

crore per city. That’s because gas requires a great deal of expensive infrastructure, much more than oil.

Whatever the usage, complex pipeline networks have to be laid for the constant flow of gas.

Industry sources are reluctant to admit that investment is the main issue. The big concern is that in the

fluctuating list of priority consumers for KG Basin gas, CGD has hovered between third and fourth spot

after fertiliser, power and petrochemical projects. Although the uncertainty has been largely cut with a

firm allocation of 5 million metric standard cubic metre per day (mmscmd) of gas to city-gas projects,

there is a restriction that puts a huge question mark over the viability of these projects. According to the

gas utilisation policy announced by the Empowered Group of Ministers (EGoM) last year, this gas is

meant exclusively for domestic consumers through the piped natural gas (PNG) network and for

compressed natural gas (CNG) supplies to public transport; supplies to industry are banned under the

policy.

Surprise entrants and winners in the first round

City/Town Bidders Won by

Kakinada(Andhra Pradesh) Reliance Gas Corp (RIL subsidiary), Bhagyanagar Gas

Bhagyanagar Gas

Dewas(Madhya Pradesh) GAIL Gas, IOC-Adani Energy, GSPC Gas#

GAIL Gas

Meerut(Uttar Pradesh) GAIL Gas, IGL , IOC-Adani Energy,

GAIL Gas

Sonepat(Haryana) GAIL Gas, IGL, IOC-Adani Energy, Cairn-BPCL, DCM Infrastructure

GAIL Gas

Kota(Rajasthan) GAIL Gas, Cairn-BPCL, IOC-Adani Energy

GAIL Gas

Mathura(Uttar Pradesh) GAIL Gas Not awarded because of lone bid

# Subsidiary of Gujarat State Petroleum Corporation

Companies say this will hurt viability since households, although larger in number than industrial

consumers, pay much lower rates. The domestic sector entails a higher investment because of the dense

pipeline network that is required, but the tariffs are much lower, and it is the cross-subsidisation that

makes CGD profitable. The principle is similar to electricity tariffs where industrial and commercial users

subsidise the domestic sector. The rationale for CGD pricing is that it is always benchmarked to the fuel

that it is substituting. In other words, domestic consumers who will be switching from LPG cylinders to

PNG will expect a commensurate drop in the tariff, just as vehicles moving from diesel and petrol to CNG

need an incentive. The premium that industry can pay in switching from expensive naphtha, diesel and

fuel oil to piped gas, however, is large and will provide the cream for CGD operators.

The Petroleum and Natural Gas Regulatory Board (PNGRB) has been lobbying hard to get this restrictive

clause removed but has not succeeded so far. The counter-argument from the government that CGD will

not be in a position to utilise the allocated 5 mmscmd this year ignores the crux of the profitability issue.

There are other concerns, too. Getting the host of local authorities whose permission is necessary for

pipelines and installations could clear some of the fog of uncertainty over CGD projects. Delays and

obstruction from the local authorities have been notorious for delaying projects in the National Capital

Region where Indraprastha Gas Ltd (IGL), the authorised entity, has been struggling for necessary

permissions despite being a state-owned enterprise. A single-window system could help speed up

matters.

Industry has also suggested the creation of exclusive corridors for laying gas pipelines through the

inclusion of CGD in the city development plan which could obviate some of the common problems.

Some companies in the business are also seeking essential utility status for CGD.

But there are concerns, too, about the way the nascent CGD industry is shaping up. For consumers, the

worry is about monopolies developing in a sector where players are few, and the big ones have entered

into alliances that could stifle competition. The results of the first round of bidding for six cities have set

alarm bells ringing. There were just eight companies in the fray and in the case of one city, Mathura,

there was just one bidder — GAIL Gas. This fully-owned subsidiary of GAIL India has bagged four of the

five bids and, unless a fresh bidder appears for Mathura, it could have five cities under its belt.

Last week, GAIL chairman U D Choubey announced that the public sector company had prepared a war

chest of Rs 1,000 crore to establish CGD projects across the country. Its subsidiary GAIL Gas successfully

trounced its partner firm IGL, in which it has a stake along with BPCL and the government of Delhi. Deep

pockets and an established pipeline network that gives it a technological edge could put smaller

companies out of the reckoning.

Analysts have also been taken aback by the fact that the market leader Reliance Industries Ltd (RIL) has

responded rather gingerly to the bid. Its subsidiary, Reliance Gas Corporation, which had submitted

Expressions of Interest for 60 cities last year, bid for just one of the six on offer, Kakinada — and not

aggressively enough. It lost the bid to Bhagyanagar Gas, a joint venture of GAIL India, HPCL, the Andhra

Pradesh Industrial Infrastructure Corporation and Kakinada Seaports, a feat that has left the market

open-mouthed.

Interestingly, GAIL Gas did not bid for Kakinada. In March this year, Choubey had been quoted as saying

that the public sector outfit would not be bidding against Reliance for the CGD business but would have

an alliance on CGD under which the two companies would bid separately for different cities, and the

winning company would take the other on board as a partner for executing such projects. This was

reportedly in line with the MoU signed between GAIL India and RIL in 2007 for cooperation on pipelines

and marketing.

City-gas distribution networks*

Target No. of cities

Population covered (in million)

Approximate investments (Rs crore)

Natural gas Requirement (mmscmd)

2011 86 100 24,500 16

2013 120 140 43,000 30

2018 250 250 80,000 50

* Projections made by the Petroleum Natural Gas Regulatory Board in December 2008

GAIL Gas had submitted Expressions of Interest last year for seven cities, none of which overlaps with

the 60 submitted by Reliance Gas. For consumers, this could be a worrying development although

sources at the regulatory body say monopolies or cartels would be discouraged. With the PNGRB

opening up seven new cities — Ghaziabad, Allahabad, Jhansi, Shahdol, Rajahmundry, Pondicherry and

Chandigarh — the market and the regulators would be closely watching the outcome of the bidding,

which closes in June.

They are also hoping that there will be more such surprises as the Cairn-BPCL joint venture. Cairn, which

has gas and oil reserves in Rajasthan, threw its hat into the ring for Kota and Sonepat. Although it didn’t

make the bid, the presence of more such companies would make the CGD business more competitive —

and better for India’s emerging gas economy.

DSM beats GAIL to bag Mathura city gas supply right

http://www.business-standard.com/india/news/dsm-beats-gail-to-bag-mathura-city-gas-supply-

right/60577/on

Press Trust of India / New Delhi May 05, 2009, 18:21 IST

Little-known DSM Infratech has beaten state-run GAIL India to bag the right to retail CNG to

automobiles and piped cooking gas to households in Mathura in an auction process that has raised

several eyebrows.

GAIL Gas, a unit of GAIL, was the sole bidder for city gas distribution project in Mathura when bids for six

cities closed in March. But Petroleum and Natural Gas Regulatory Board (PNGRB) extended bid date for

Mathura by one month. DSM, with no experience in gas business, submitted an astonishingly low

pipeline tariff to beat GAIL, which was not given an opportunity to revise its previous bid, sources said.

For the first five years - the monopoly period for the operator, DSM bid Rs 0.10 per million British

thermal unit as the pipeline transportation tariff. GAIL had quoted over Rs 5 in the bid that was

submitted in March, they said.

From sixth year, DSM says it will charge Rs 10, raising doubts that the company had under-bid the

pipeline tariff so as to make up for under-pricing the gas transportation charge by pricing CNG and piped

gas at higher prices.

PNGRB's selection criteria only prescribed for bidding for pipeline transportation tariff and not the final

gas price, which some say should have been the end where competition would have ensured benefit to

the consumers. GAIL has raised doubts over the entire bidding process and has approached the

Appellate Tribunal, saying the methodology adopted by PNGRB was not in conformity with CAG

guidelines for bidding.

According to CAG, if bid deadline is extended, companies have the right to revise their price bid. The

Tribunal is likely to hear GAIL plea tomorrow, sources said.

In March, GAIL Gas had emerged top bidder to win retailing rights for Kota and Dewas. Bhagyanagar Gas

Ltd, an equal joint venture of GAIL and Hindustan Petroleum, got Kakinada. GAIL also got Meerut in

Uttar Pradesh and Sonepat in Haryana.

Tribunal asks regulator to file submission on Gail plea

New Delhi, May 06, 2009 (Asia Pulse Data Source via COMTEX) --

http://www.individual.com/story.php?story=100732211

Accepting the petition of state-run GAIL India, which failed to get rights to retail CNG to automobiles and

piped cooking gas to households in Mathura, energy tribunal APTEL today directed oil and gas regulator

PNGRB to file its written submission by Monday.

After a brief hearing, the APTEL bench headed by its Chairman directed the Petroleum and Natural Gas

Regulatory Board to file its written submission over GAIL's petition by Monday.

During the proceeding, GAIL Gas, a unit of GAIL, accused PNGRB of not giving a fair chance to revise its

bid for Mathura city and issued LOI to a little-known DSM Infratech.

Requesting the tribunal to stay the process, counsel appearing for GAIL submitted it was a sole bidder,

but later, PNGRB extended dates and during that period DSM Infratech submitted its bid. After that it

requested the board to revise its bid, which was not allowed.

"When GAIL was the sole bidder, they kept on postponing the matter, and when a competitor came they

did not gave us a chance to revise the bid," the PSU firm submitted adding it was against the nature of

bidding which is to encourage competition. GAIL further submitted that it was entitled to withdraw its

bid and to submit a better offer.

"Unfortunately, GAIL was not allowed...This tribunal should stay the process and allow us a fair chance

to participate," submitted GAIL's counsel. The PSU also challenged the letter written by PNGRB's

secretary informing that it could provide chance to revise the bids. However, refusing it, the Appellate

Tribunal for Electricity (APTEL) said, "You are challenging a letter written by PNGRB. How could we set

aside a letter".

During the proceedings, the tribunal also suggested GAIL to approach the PNGRB again as still there was

not any order from the board. Refuting the allegations made by GAIL Gas, PNGRB said that there was

only one party in the bid, so it was forced to extend bidding time. Its counsel further submitted that

their hands were tied as per laws, they could not allow any party to revise its bid.

"Moreover, we have not modified or altered any condition of the bid, so there is no question of stay...

We even did not rejected GAIL's application. Bids were opened and the PSU was not there," submitted

PNGRB's counsel.

"GAIL has already got licences for two places and not it wants to have all the licences," she submitted.

The tribunal has listed the matter on May 14 for next hearing.

Copyright 2009 APU Newswire. All rights reserved.