The three suppliers of piped natural gas—Gujarat Gas Ltd., Indraprastha Gas Ltd. and Mahanagar Gas Ltd.—may face competition as India plans to improve penetration of the cleaner alternative to kitchen and auto fuel for curbing pollution.
The Petroleum and Natural Gas Regulatory Board has uploaded on its website a concept paper for determining network tariffs that a third-party or a new entrant would pay for using the network and compressed natural gas infrastructure of existing city gas distributors where marketing exclusivity has ended.
The draft regulations proposed by the petroleum regulator provide two options for determining the tariff—first, based on 14 percent return-on-equity; and second, based on auction process. These norms, however, await stakeholders' comments. The regulator has invited comments from public within 21 days, that's till July 19. It will then conduct an open house to discuss the comments on July 25.
After its formation, PNGRB had authorised certain pre-existing city gas distribution networks. Now as these have reached the end of their specified time frame, the petroleum regulator intends to determine a process to open access to the networks.
The marketing exclusivity of India's largest city gas distributor—Gujarat Gas—has ended in eight areas and will end in four more areas over the next one year. Exclusivity of Indraprastha Gas, that only operates in Delhi, has ended in the region. For Mahanagar Gas, exclusivity has ended in Mumbai and Thane region and will end in Raigad district in the next one year.
Here's what brokerages have to say:
Motilal Oswal
- This would eventually challenge the monopolistic nature of the business, thereby challenging sales volumes, Ebitda/standard cubic metre and return ratios.
- Assuming the competition takes away 20 percent of the current sales volume, it would result in 120-basis-point reduction in return-on-equity.
JM Financial
- Just creating rules for third party access may not be able to induce competition as India offers enough growth opportunities for city gas distributors.
- Sees no material immediate impact on city gas distributors.
- This paper maybe challenged in courts.
Citi Research
- Believes there are several legal and practical considerations that may come in the way.
- Legal hurdles are high, the move is likely to face stiff opposition from companies.
Morgan Stanley
- May face competition in the supply to state transport buses and industrial consumers.
- If tariffs decline, higher volumes for companies such as Indraprastha Gas and Gujarat Gas could see rise in earnings.
- Rise in utilisation for existing distributors could boost returns in medium term.
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