City Gas Distribution: New gas licences promise solid gains

By: |
Published: April 1, 2019 11:08:36 AM

While some experts have expressed doubts about the aggressive bidding in latest rounds, private players are sure of meeting targets.

The company won three GAs in the ninth and nine GAs in the tenth round.

Consumers have never had it so good as far as potential availability of cleaner and cheaper gas for their energy needs is concerned, with 136 geographical areas (GAs) being awarded in the ninth and tenth round of city gas distribution (CGD) licence auctions in the last two years. This is a huge jump over the 91 GAs awarded in eight CGD rounds over the preceding eight years.

This acceleration has been accompanied by the entry of new players in the CGD space. Almost 50% of the 136 GAs were won by Adani Gas and the oil marketing companies, outbidding incumbents like Indraprastha Gas, Mahanagar Gas and Gujarat Gas—the new entrants were aggressive with their bids even as the existing players concentrated mostly on return on capital. After the tenth round, CGD licences have been auctioned for 228 GAs in all, comprising 402 districts across 27 states and union territories.

Some experts have expressed doubts regarding the viability of bids by the new players. “We remain skeptical of work completion by successful bidders given the extremely aggressive PNG (piped natural gas) and CNG (compressed natural gas) station targets,” Edelweiss Securities has observed in a report. The latest rounds entail setting up of 8,181 CNG stations and 42.4 mn PNG connections compared to 1,349 CNG stations and 4.2 mn PNG connections in the earlier rounds put together.

However, the new entrants are confident of meeting targets. “We were very conscious of the number of PNG connections we quoted. We will be able to achieve those targets,” says P.P.G. Sarma, MD for CGD and logistics at Atlantic Gulf & Pacific Co of Manila (AG&P). The company won three GAs in the ninth and nine GAs in the tenth round.

AG&P claims to have done a detailed study of the GAs and met customers before it bid for 13 GAs in the tenth round. “The targets will be met through innovative solutions derived from our global expertise,” he says. “It is really about how we control the molecule in its journey from the terminal to kitchens or fuel stations through our designs and systems,” points out Joseph Sigelman, CEO, AG&P.

One private player to have made a huge impact in the last two rounds is Adani Gas, having won 15 GAs on its own and another ten in a joint venture with Indian Oil (IOC). Again, the company is confident of achieving targets. “Our contractual offerings are extremely flexible and designed to suit customer requirements in all the segments,” says an Adani Group spokesperson.

Among the other top winners in the ninth and tenth rounds are IOC (17), Bharat Gas Resources (13), Torrent Gas (13) and Hindustan Petroleum Corporation (10). Given the aggressive bidding, analysts at Edelweiss “expect consolidation to take place, to the benefit of incumbents, as new entrants fail to deliver on steep targets”. Be that as it may, completion of work mandated by the ninth and tenth rounds —on-ground results are expected from 2020 onwards and run up to 2029— would go a long way in taking the share of gas in India’s energy mix from 6.5% to the targetted 15%.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.