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Despite easing, Mumbai's private CNG retailers 'won't expand'

Monday, 30 December 2013 - 7:51am IST | Place: Mumbai | Agency: DNA

It appears as though the government’s recent efforts to liberalise retailing of compressed natural gas (CNG) may not yield the desired fruit. For, private sector oil & gas firms are unlikely to expand their retail network of CNG stations due to scarcity of natural gas and higher prices.

So far, city gas distributors (CGDs) enjoyed CNG monopoly in their respective territories, even after the expiry of the five-year exclusivity period. But, earlier this month, the petroleum ministry notified that the Petroleum and Natural Gas Regulatory Board’s approval was not required any more for setting up CNG stations.

This meant that any company was free to start a CNG station.Currently, state-backed GAIL and its joint ventures in Delhi, Maharashtra, Uttar Pradesh, Gujarat, Andhra Pradesh, Tripura, and Madhya Pradesh enjoy majority in CNG retail market, where as private players like Reliance Gas, Adani Gas and Aegis Gas have a minor share.

Despite government’s recent move, gas firms feel setting up a new CNG station is easier said than done. Several factors hold key. For example, cost and availability of land. Similarly, cost of laying the pipeline, vehicle population and demand for CNG in the locality are crucial. Typically, a new CNG outlet in or around Delhi would require an investment of around Rs3.5 crore.

“With additional demand for gas being met through market-priced re-gasified liquid natural gas (RLNG), new players will have to take higher gas cost into consideration before investing in CNG infrastructure,” said a spokesperson of Indraprastha Gas (IGL), a CGD operator.

An official from state-backed Gujarat-based CGD said that while the government’s free-up-CNG move might be aimed at increasing competition, it is unlikely to bring about any significant change. For private players will still have to depend on CGD operators for pipeline infrastructure.

And, even if they manage to lay their own pipelines, availability of gas remains a big concern.

“It does not make sense for a private company to expand its CNG retail network as it would have to compete with CGD players. The latter get gas at $4.2 per mmBtu under the APM, while new players will have to depend on RLNG, which is available at a price four times that of $18-19,” said the Gujarat CGD official.

Such high costs would mean that RLNG-dependent private players may have to sell CNG at around Rs65-66/kg, said Dhaval Joshi, an analyst with Emkay Global Financial. On the other hand, IGL and Mahanagar Gas retail CNG at Rs50.10/kg in Delhi (post recent revision in prices) and at Rs40/kg in Mumbai.

For the next 3-4 years, private players may desist from expanding their CNG network, analysts said. Reliance Gas, Adani Gas and Mahanagar Gas declined to comment for this story.

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