Context: Recently, the Petroleum and Natural Gas Regulatory Board (PNGRB) set to notify regulations to allow competition for City gas distribution companies.

Current Scenario of Gas Distribution in India

• The three City Gas Distribution Companies currently have exclusive right to lay, operate and expand gas distribution infrastructure in their respective geographies.
• The three players market both Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in their respective areas.
• The government had decided to grant exclusivity to gas distribution companies to incentivise them to invest in infrastructure to deliver PNG and CNG widely across cities.
• These companies supply PNG to household, industrial and commercial use and CNG for vehicles through retail sites of state-owned oil marketing companies.

Proposed changes in Gas Distribution

• Under the proposal by the PNGRB, distribution companies would have to provide access to third-party companies to pay to use their infrastructure to market CNG and PNG.
• The payment should be based on a transportation tariff set by the incumbent players but regulated by the PNGRB in case of disputes.
• The PNGRB has sought suggestions from stakeholders on how the tariff for use of the pipeline network of the city gas distribution companies should be decided.

Impact of City Gas Distribution on Customers

• The end of marketing exclusivity may lead to some competition and lower prices for CNG.
• CNG sales are the most profitable market segment for city gas distribution companies with margins at around 30% of the retail price of the fuel.
• Oil Marketing Companies (OMCs) may seek to take some market share in the CNG distribution business by using the distribution network of the city gas distribution companies to retail CNG directly to customers.
• The OMCs may not seek to take up the opportunity that arises from the end of the exclusivity period immediately as they are currently enjoying risk-free commissions on the sale of CNG at their retail sites.
• The CGD companies and OMCs may decide to increase the commissions provided to OMCs once gas distribution companies lose marketing and infrastructure exclusivity.

Impact of proposed changes on City Gas Distribution Companies

• Indraprastha Gas Ltd. in Delhi, Mahanagar Gas Ltd. in Mumbai and Gujarat Gas Ltd. are three city gas distribution companies set to be affected by the opening up of these markets and their pipeline infrastructure to third parties.
• The profitability of city gas distribution companies would be affected significantly if their market share is taken up by competitors.
• It may even reduce their ability to invest further in expanding gas distribution infrastructure.
• The CGD companies have opposed the opening up of CGD infrastructure for use by third parties.