As India transitions to a cleaner future, natural gas is emerging as a crucial bridge fuel. Recognising its strategic role, the government aims to increase the share of natural gas in the primary energy mix to 15 percent by 2030 from the 2022 level. As a part of this push, expansion of city gas distribution (CGD) networks has come into focus, witnessing the fastest growing gas demand and becoming the second-largest gas consuming sector after fertilisers. Yet the segment seems to be facing various hurdles to its growth, especially on the regulatory and policy fronts.
The Indian government has awarded 307 geographical areas across 12 bid rounds, spread over around 748 districts by 2024. The CGD companies—public and private—have committed to connect 120 million piped natural gas (PNG) users by 2030.
However, the actual rollout figures tell a different story. Currently, India has over 15 million PNG connections with nearly 1.6 million connections being added annually over the 2020-24 period. To hit the 2030 targets, the rollout of PNG connections would need to accelerate more than ten-fold, which translates to an addition of nearly 18 million connections annually over the next 6-8 years. Achieving this ambitious target requires a deviation from the ‘business as usual’ stance.
The gap between the targets and the actual PNG connections today is more of a performance issue reflecting deeper structural and regulatory challenges.
The PNGRB Act, 2006 mandates every CGD entity to obtain authorisation from the regulator to develop its network. Despite having a licence, a CGD company faces delays due to multiple central and state agency clearances, each with varying timelines and processes. Many clearances fall within a state’s jurisdiction; where varying protocols, timelines and costs across states often hinder pipeline infrastructure expansion and delay new connections. Lack of inter-agency coordination adds significant complexity.
A uniform nationwide framework with a single-window approach is essential to streamline permissions, ensure process uniformity, and enable time-bound CGD infrastructure approvals. Given the massive annual targets, time-bound deemed permissions with robust governance are essential for faster rollout while ensuring the necessary oversight and accountability.
On the positive side, a few states have adopted progressive CGD policies. For instance, Assam’s City Gas Distribution Policy, 2022 mandates issuance of clearance certificates for key infrastructure within 30 days and empowers CGD entities to build and operate networks in allotted areas. Karnataka’s 2023 policy ensured constitution of a special desk in the infrastructure development department and established an apex committee to fast-track clearances and coordinate monthly district reviews.
Most importantly, these policies provide a clear timeline for issuing clearance certificates to lay pipelines. As natural gas is a central subject, a common national framework with harmonised rules is expected to greatly improve overall outcomes.
In addition, effective measures are needed to enhance gas availability and ensure affordable pricing. To ensure nationwide availability, transmission pipelines must reach every district, enabling efficient network expansion. Connectivity delays lead to higher costs, project delays, and declining investor interest.
Apart from supply hurdles, CGD companies struggle with generating viable demand—with switching cost (from LPG to PNG) and the overall cost competitiveness being key barriers to PNG’s household penetration. To illustrate, the alternative household fuel, LPG, enjoys various incentives such as the PM Ujjwala Yojana and other state-specific benefits, which are not available to household PNG. Such consistent policy efforts have resulted in LPG demand to grow significantly, with nearly 330 million active domestic consumers, 20 times that of home PNG connections.
Natural gas also faces an uneven playing field due to taxation disparities. It falls under the VAT regime while alternative fuels fall under GST, making PNG cost-inefficient for both consumers and CGD entities. The Chintan Research Foundation finds that expanding the natural gas sector requires policies that enable demand through price stability and tax structure rationalisation.
To unlock the CGD sector’s full potential, the regulatory hurdles and penalties need to be changed to a conducive policy ecosystem. The regulator is reported to be considering measures for CGD entities that miss their household connection targets. While accountability is vital, such measures without structural reforms—like streamlined permissions, transmission access, tax parity, and fair PNG-LPG competition—will further burden the CGD sector.
It is crucial for policymakers to recognise the genuine hurdles to understand delays and guide a fair policy. Hence, instead of business as usual, a facilitative approach with a focus on the ease of doing business will steer the CGD sector to the levels necessary to ensure a smooth and sustainable energy transition for India.
(Authors are research associates at Chintan Research Foundation. Views are personal)