Petroleum and Natural Gas Regulatory Board (PNGRB) which is the regulator for City Gas Distribution (CGD) has decided to open up City Gas Distribution to multiple players. Under open access, the consumer can choose which company it wants to buy gas from.
City Gas Distribution requires setting up pipeline infrastructure to deliver gas to end consumers. This is a capital intensive exercise. Initially to encourage companies to set up this pipeline infrastructure companies were given exclusive rights to lay, operate and expand gas distribution pipeline infrastructure in their respective geographies as well as market both Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in these areas.
By having exclusive rights, these companies could be assured of adequate demand which encouraged them to invest. Eg: Indraprastha Gas Ltd. in Delhi, Mahanagar Gas Ltd. in Mumbai.
The regulator feels the sector has matured enough to allow multiple players. But given the nature of the business, it isn’t viable for all new players to invest in setting up their own pipeline infrastructure. So the proposal is to let other companies use the pipeline infrastructure already available and pay charges to the companies who own it.
A section of analysts feel that by allowing open access at this stage might dampen further investment in pipeline infrastructure.
It’s the regulator which will decide the charges of using pipeline infrastructure and other rules surrounding it. It’s for the regulator to balance that the companies who have invested in the pipeline infrastructure get an adequate return plus competition can be fostered.
The move is good for the consumer. Any move which allows more competition usually results in better prices and service.
CGD companies market CNG through retail pump sites of state-run oil marketing companies. This is among the most profitable segments for CGD companies with a margin of around 30% of retail price. State-run oil marketing companies get a commission on sale. This segment might see increased competition and better prices for the consumer.
The immediate competition might come for Oil Marketing companies like BPCL, HPCL etc. The gas is sold through outlets controlled by them, they can start selling by themselves.
But a section of analysts believe that they might not be keen to enter this segment given they get riskless profit from the present commission arrangement.
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