City gas distribution to see big investments
Investments of as much as ?1.1 trillion is expected in building city gas distribution networks over the next decade
Mumbai: City gas distribution (CGD) network is turning out to be the next big downstream expansion in India, after fuel retailing, with investments of as much as ?1.1 trillion expected over the next decade, said company executives.
CGD refers to transportation or distribution of natural gas to consumers in domestic, commercial or industrial and transport sectors through a network of pipelines. This business has, over the last decade, attracted several companies to lay a network of gas pipelines.
“CGD is the next big expansion in the downstream segment with nearly 40 companies operating in the segment. This, against fuel retailing, which is dominated by a few players, including state-run oil marketing companies,” said Rajendra P. Natekar, director, Bharat Gas Resources Ltd (BGRL). “Though in terms of pure numbers, fuel retail stations gain, in terms of coverage of distribution and customers, the impact of CGD will be felt more. Besides, CGD will gain more traction over time.”
BGRL will invest ?4,000 crore to build a CGD network in Ahmednagar, Aurangabad, Sangli and Satara districts in Maharashtra. The company won bids for the areas in the ninth edition of the CGD auction.
At present, 31 companies are developing CGD networks across 81 geographical locations in 21 states and Union territories, supplying clean cooking fuel in the form of piped natural gas (PNG) to about four million households. The government, which plans to provide 10 million PNG connections, has introduced stringent emission levels for vehicles and plans to develop green corridors to reduce India’s carbon footprint.
There are about 60,000 fuel retail stations and around 1,500 CNG stations across India, but it is the sheer reach and loyalty of customers that the CGD companies are banking on. “Once you enrol a customer, he seldom leaves you. So, we see our customer base expanding rapidly. What also works in favour of PNG is that in comparison with LPG, it is a safer fuel and cheaper,” said a senior official at a CGD company operating in Maharashtra.
What is also helping the expansion of CGD network across India are various policy initiatives for its expeditious development. CGD has been accorded the highest priority in gas allocation while allocating 100% domestic gas for the domestic PNG and CNG segments.
On the regulatory front, recently, the Petroleum and Natural Gas Regulatory Board (PNGRB) has reformed to a large extent the CGD authorization regulations to address the impediments faced in previous bid rounds. Also, some state governments have introduced sector-specific policies/guidelines enabling overall growth of CGD network in India.
The only challenge, however, could be the availability of skilled manpower to undertake expansion at this large scale.
"In terms of opportunities, there will be a lot for the ecosystem. Demand for engineering and procurement companies, gas mechanics, the labour force will multiply and the industry also has to train resources as trained manpower is a scarcity in this business," said K Ravichandran, group head for corporate sector ratings at rating agency ICRA Ltd.
To tap the growing market, the industry has to tie-up with industrial training institutes or ITIs to develop skilled manpower, said Ravichandran.