City gas distribution (CGD) in India covers over 280 geographical areas (GAs) comprising around 580 districts spread over 28 states and union territories (UTs). After the 11th round of bidding, around 98 per cent of India’s population and 88 per cent of its GAs will be covered. The CGD sector accounts for around 19.5 per cent of India’s total natural gas consumption. Total gas consumption for April 2022 is 4,493 million metric standard cubic metres (provisional), with CGD accounting for 23 per cent of the total.
Indian Oil Corporation Limited’s (IOCL) CGD portfolio contains 49 GAs, of which 26 are standalone and 23 are joint ventures (JVs). IOCL won Allahabad and Chandigarh in the second round of bidding in 2013, then Panipat, Daman and Ernakulam in the fourth round (2015). Later, in the fifth round of bidding (2015), it won Udham Singh Nagar, and in the eighth round (2018), it acquired Dharwad, South Goa and Bulandshahr.
The year 2019 highlighted IOCL’s entery into the CGD business as a standalone entity, where in the ninth round of bidding it secured eight GAs (Aurangabad, Kaimur and Rohtas; Bokaro, Hazaribagh and Ramgarh; Guna, Rewa, Jagtial, Peddapalle, Karimnagar and Rajanna Sircilla; Salem; Coimbatore; and Srikakulam, Visakhapatnam and Vizianagaram) on its own and 11 GAs through JVs.
In the 10th round of bidding, IOCL won a number of GAs, notably in Bihar (Araria, Purnia, Katihar and Kishanganj; Arwal, Jehanabad, Bhojpur and Buxar; Khagaria, Saharsa and Madhepura; Lakhisarai, Munger and Bhagalpur; and Muzaffarpur, Vaishali, Saran and Samastipur). It acquired Nawada and Koderma, as well as Sheikhpura, Jamui and Deoghar in Bihar and Jharkhand, in addition to Ashokanagar and Morena in Madhya Pradesh.
IOCL has established itself as a dominant player in the CGD sector by securing nine high-potential GAs in Andhra Pradesh, Jammu & Kashmir, Maharashtra, Punjab, Rajasthan, Tamil Nadu, and West Bengal in the 11th round of bidding in 2022.
Strong market opportunity
The Ministry of Petroleum and Natural Gas (MoPNG) has an investment plan to inject up to Rs 900 billion and create over 250,000 local jobs in order to cover 53 per cent of the country’s area and 70 per cent of its population with CGD. The government also plans to boost piped natural gas (PNG) connections to over 50 million and compressed natural gas (CNG) stations to more than 10,000.
Meanwhile, areas of opportunity for digitalisation include central supervisory control and data acquisition (SCADA), web-based GIS solutions, a central vehicle tracking portal for light commercial vehicle mobility and cloud-hosted contact centre solutions.
New technologies, such as gas-based heaters, two-wheelers and generators, as well as materials and equipment, such as dispensers, compressors, meters (smart meters, prepaid meters) and medium density polyethylene pipes, are all profitable investment areas for IOCL.
With CGD infrastructure rapidly increasing, the market for CGD equipment and replacement parts is predicted to rise exponentially. The demand for key PNG equipment such as mechanical meters, smart meters, PNG regulators (domestic/service/meter) and PE/GI pipes and fittings, along with CNG-related equipment such as online compressors, booster compressors, dispensers and cascade (mobile type I/III/IV), is expected to witness a boom and in turn accelerate the Make in India programme.
CGD is anticipated to become an emerging sector with significant investment and activity. This will be a massive undertaking, and a distribution network will need to be established throughout the country, while keeping safety regulations and the profitability of the corporations participating in the industry in mind.
However, as far as the creation of vast CGD networks at an accelerated rate, catering to enormous public demand in areas not yet connected by pipelines, is concerned, there is a lack of development of the core competencies of skilled personnel to handle CGD implementation and operations, and the utility corridors in the majority of cities have neither been mapped nor created. Moreover, obtaining permissions and clearances for laying pipeline and setting up CNG stations from multiple agencies with no uniformity of guidelines in different states take a considerable amount of time.
Getting permissions and performing road restorations, as well as acquiring land for the installation of district regulating stations/sectionalising valves, are costly procedures. Additionally, the overburdening of suppliers results in delivery delays and escalating costs.
Among the challenges encountered during implementation is reassessment of the CGD allocation policy, as all newly expanding CGD companies must purchase a significant amount of liquefied natural gas to meet the increased demand of above 110 per cent.
The completion of the National Gas Grid to ensure the undisturbed supply of natural gas across the nation is also crucial. PNG infrastructure must be incorporated into local building codes and Smart Cities Mission projects, and PNG usage must also be mandated for gasified societies/townships.
As CGD is still a developing industry, the central government has guaranteed an administrated price mechanism (APM) for gas allocation and stabilised APM pricing for the next five to six years, to reassure customers regarding domestic piped natural gas (DPNG) prices. New/Retrofitted CNG vehicles may be exempted from the Vehicle Scrappage Policy and judged fit for at least five more years.
A plan similar to Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) may be explored for the CNG sector, as margins from the CNG industry will undoubtedly aid CGD businesses in achieving faster penetration of DPNG. On the CGD network, the annual rent/property tax paid by local authorities will be waived.
The Ministry of Housing and Urban Affairs (MoHUA) has recommended that all state government/public sector colonies transition to PNG and rationalise the applicable value added tax on domestic PNG/CNG. In order to build the necessary CGD infrastructure, such as city gate stations and CNG stations, state governments should offer government land at concessional rates. Furthermore, the state government is also advocating for the implementation of the draft CGD Policy introduced during the January 2020 CGD conclave. CGD entities will be granted single-window permission for the nationwide installation of gas pipelines at standardised pricing. The design and construction of new layouts and multi-storey complexes will incorporate MoHUA recommendations for the provision of PNG facilities. Lastly, state governments are pushing the introduction of more CNG buses by state transport authorities.
Going forward, IOCL, with its pan-India presence of pipeline infrastructure, strong focus on innovation through research and development and alternative energy sources, and support from the Government of India, is future-ready and will continue to be India’s flagship company. Additionally, it plans to scale up renewable projects, build natural gas import and transportation capacity, and work on digital transformation initiatives. n
Based on a presentation by Raj K. Zutshi, Chief General Manager (CGD), IOCL, at a recent India Infrastructure conference