NEW DELHI: India’s oil and gas market regulator PNGRB (Petroleum and Natural Gas Regulatory Board) has notified some keenly-awaited changes in regulations governing city gas markets. The tweaks do much to throw open the sector to competition, but also extend some protection over the existing investments of incumbent players.
The most impactful change for consumers is set to be the new unified tariff system. So far, tariffs had been set depending on how far, or near, the consumer was from the gas source. This resulted in progressively higher charges the further away they were from the coast (LNG import terminals).
The new system, however, will put in place just two tariff zones: Zone-I will comprise areas within 300 km from the gas source, and Zone-II everything beyond. According to market experts, the new system will result in customers near the source pay around 20-30 per cent more in transportation charges, but will lead to a substantial cost reduction in the hinterlands.
More important from an industry standpoint, perhaps, is the rolling out of open market access — a proposal that had come in for vehement opposition from incumbents. CGD players have market exclusivity and feared that the decision to allow open access to 20 per cent of capacity would eat into their own investments. It is to be noted that many CNG players dispense gas from outlets located in oil marketing companies’ fuel stations and major OMCs have expressed a keen interest in venturing into the CGD sector themselves.
However, the final notification includes some protection. “The notification restricts existing OMC co-located CNG outlets from selling CNG under open access route mitigating any negative impact on existing earnings of CGD companies in the CNG segment,” noted analysts from brokerage Jefferies India. CGD companies consequently saw share prices soar on Friday, with Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) scrip rising 9.5 per cent and 13.7 per cent respectively.
However, others say these are merely stop-gaps and that incumbents will have to prepare. “Regulations do not allow OMCs to terminate agreements with incumbent and set up their own dispensers in CNG stations where the incumbent had one, as PNGRB wants new infrastructure creation.
Whether OMCs can set up own dispensers while continuing to dispense CNG for incumbents is a grey area,” said ICICI Securities. “Even if OMCs can install CNG dispensers only at stations where incumbents do not have a presence, it can only delay competition, which would eventually hit volume growth and margins of incumbents”.