Let gas flow through Indian cities

The CGD projects can entail an investment of about Rs 50,000-75,000 crore over the next 5-7 years in the 250 cities that have been identified by the Petroleum amp; Natural Gas Regulatory Board PNGRB. Besides stimulating the economy,this would also help create jobs in various areas,such as laying down the CGD infrastructure,billing and collection,maintenance and gas station operations. Most Indian cities face acute power shortage. None of the sectorsdomestic,commercial and industrialcan escape from the wrath of the ubiquitous summer power cuts. A majority of them turn to diesel/kerosene-based power generation to keep factories running. Gas-based power gensets offer an attractive solution and are not only cheaper than diesel-based gensets,but also less polluting.

The PNGRB was created for the purpose of accelerating the growth of CGD projects in India. The Board now needs to enable the development of projects in the identified cities in an accelerated manner. But it should keep in mind the investment appetite and execution capacity of the players involved to successfully implement the projects in those cities for which they win the projects.

Although there are already some public and private sector players present in the CGD sector,entry of large players with an appetite for huge investments in CGD projects is required to increase the pace of development. Players who are able to understand the risk-reward profile of infrastructure projects or who have knowledge of the oil amp; gas sector can be at an added advantage to enter this sector and play the role of growth catalysts. State governments will continue to play an important role in the development of the CGD projects. Lead time required in obtaining clearances like right-of-way from state agencies needs to be optimised. Significant investments in state road transport corporations are also required to upgrade diesel-driven buses to CNG. These investments would reap long-term benefitsreduced pollution and operating costs.

One of the biggest challenges that the industry is going to face in the future will be the availability of skilled manpower that can operate and maintain the CGD infrastructure. Currently,the oil marketing companies OMCs have a leading position in meeting the energy requirements of the domestic,commercial,industrial and auto sector in each city. The OMCs,which currently dominate the fuel petrol,diesel,LPG,etc retail market in the country,are likely to witness a significant impact on their fuel retailing business. With the five-year exclusivity period granted to successful bidder of each city,OMCs are likely to lose a large number of industrial,commercial and residential clients to the cheaper and more convenient fuel.

The association of city gas players,along with government agencies,needs to address these live issues faced today. New entrants could look to form joint ventures with large companies to bid for multiple cities. This will not only enable increased investments in the sector,but also help expand the execution capacity and capabilities. The government can also facilitate investments in the state road transport corporations for rapid conversion of their bus network to being CNG-driven. To deal with the potential manpower shortage,the association of city gas players could tie up with public and private vocational training institutes to develop courses designed to train and produce skilled manpower required for the development of the CGD projects at an accelerated rate.

The author is associate director,oil amp; gas practice,Ernst amp; Young