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This is an archive article published on April 1, 2019
Firms go overboard to bag lucrative CGD contracts
In their over enthusiasm to bag profitable geographical areas, some bidders offered to provide piped natural gas to households far in excess of the actual ones in an area.
In the earlier CGD licensing rounds, operators quoted one-paisa pipeline tariff to win the area they were keen on. Given pipeline tariff had 70 per cent weightage, it was easy to win bids by offering such low charges.
City gas distribution (CGD) operators seem to always have a trick up their sleeve when it comes to cornering lucrative geographical areas. While in the previous bidding rounds, firms went to the extent of not charging anything as network tariffs from customers, in the just-concluded ninth and tenth CGD rounds, some bidders offered to provide piped natural gas (PNG) to households far in excess of the actual ones in a geographical area (GA), in their over enthusiasm to bag profitable GAs.
For instance, in the ninth round of CGD licensing, Torrent Gas offered to provide 33,00,000 PNG connections in Chennai and Tiruvallur districts in Tamil Nadu by 2029 and won the bid. As per the Census of 2011, there were only 21,01,931 households in this GA. Similarly, Atlantic, Gulf and Pacific Company of Manila (AG&P), which bagged the state’s Kanchipuram GA, offered to provide 11,51,111 PNG connections in the area which had only 10,06,245 households in 2011.
According to a source, “There are around five-seven GAs auctioned out in the latest two rounds, in which companies have offered to provide more number of PNG connections than households counted in Census 2011.”
In the earlier CGD licensing rounds, operators quoted one-paisa pipeline tariff to win the area they were keen on. Given pipeline tariff had 70 per cent weightage, it was easy to win bids by offering such low charges.
The catch is that there is no restriction on price at which they could sell CNG and PNG, and they are allocated preferential gas from domestic production which is cheaper than imported LNG. So the CGD licence in some GAs can be very gainful even after such seemingly liberal offers.
Taking note of the situation, the Petroleum and Natural Gas Regulatory Board (PNGRB), during the ninth and then the tenth round, changed the criteria by giving 50 per cent weightage to PNG connection targets. In addition, 10 per cent weightage each is given to network (pipeline) tariff, compression charges and pipeline infrastructure target, and 20 per cent to CNG station targets.
While mostly it has been new entrants who have been aggressive in bidding, incumbent state-run Gujarat Gas was one of the companies in the tenth round which has won a GA by offering more than 100 per cent PNG coverage. Gujarat Gas managed to win one GA during the ninth round in which 86 GAs were up for grab, but came back strongly during the tenth round to win six GAs out of the 50 on offer.
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Making ‘irrational’ bids in the oil and gas sector is not rare: during the Open Acreage Licensing Policy rounds, bidders offered to share as high as 99 per cent of the revenue at the peak production.
This led to the government diluting the revenue-sharing model for hydrocarbon exploration within two years after its launch as it feared back-loading of production by winners. —FE
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