Natural gas set to gain home ground

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: considering most regulators would well be tempted to provide more rigid entry regulations. Effectively any entity which has laid and/or operated pipelines of a distance exceeding 300 kilometres is qualified, or if it has a shareholding of at least 11% by an entity which meets this criteria. Moreover, if the entity does not have such prior experience, it can still qualify by either appointing equally qualified contractors or personnel. Entry fees are pegged on the basis of the population of the city, and six tiers have been established, with fees ranging from Rs 8,00,000 to Rs 1.2 million. Net-worth criteria and bid bonds ranging from Rs 5-50 million have been specified to ensure that only those entrants who are serious and credible enter the fray.

To ensure timely completion of project, a performance bond ranging from Rs 10-100 million or 5% of the estimated project capex is required. This to ensure that in case the entity fails to meet any requirements the performance bond would be encashed and authorisation cancelled. In addition, a fee is levied during the construction and operation phase of CGD business. It is important to take a cognisance of these levies as this cost stack up into the overall costs and have a bearing on the resultant Return on Investment (RoI).

To attract the much needed investment, 100% FDI is automatically permitted for laying of natural gas pipelines. The policy also provides an exclusivity period to companies—25 years for the infrastructure and 5 years for marketing. This is balanced with specified service obligations within the specified geographic area of CGD networks to provide PNG connections.

In 2006, the government had framed a pipeline policy that envisages creation of additional one-third capacity of pipelines over the base capacity proposed and the same to be available on common carrier basis to third party. As regards creating additional design capacity over base capacity it is important to ensure a balance between both capacity and efficient utilisation of capacity. Inability to achieve full capacity utilisation could lead imbalances on RoI to investors.