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Explained: How move to open up city gas distribution will benefit customers, impact incumbents
City gas distribution companies may soon face competition from third parties, with the Petroleum and Natural Gas Regulatory Board (PNGRB) set to notify regulations to allow competition for these companies, which have thus far enjoyed exclusive marketing rights in their respective geographies. Indraprastha Gas Ltd. in Delhi, Mahanagar Gas Ltd. in Mumbai and Gujarat Gas Ltd. are three city gas distribution companies set to be affected by the opening up of these markets and their pipeline infrastructure to third parties.
What is the current scenario?
These players currently have exclusive right to lay, operate and expand gas distribution infrastructure in their respective geographies as well as market both Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in these areas. The government had decided to grant exclusivity to gas distribution companies to incentivise them to invest in infrastructure to deliver PNG and CNG widely across cities. These companies supply PNG to household, industrial and commercial use and CNG for vehicles through retail sites of state-owned oil marketing companies Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporate Ltd.
What is the proposed change?
Under the proposal by the PNGRB, distribution companies would have to provide access to third-party companies to pay to use their infrastructure to market CNG and PNG based on a transportation tariff set by the incumbent players but regulated by the PNGRB in case of disputes. The PNGRB has sought comments from stakeholders on how the tariff for use of the pipeline network of the city gas distribution companies should be decided.
What is the impact on consumers?
According to experts, the end of marketing exclusivity may lead to some competition and lower prices for CNG. City gas distribution companies market CNG at the retail pump sites of state-run oil marketing companies. CNG sales are the most profitable market segment for city gas distribution companies with margins at around 30% of the retail price of the fuel, according to experts.
OMCs which currently receive a commission on the sale of CNG sold through their retail points may seek to take some market share in the CNG distribution business by using the distribution network of the city gas distribution companies to retail CNG directly to customers.
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