MOSL: OIL & GAS-Bidding reforms essential for a healthy CGD sector-Consequent faster rollout could result in longevity of volume growth

​OIL & GAS: Bidding reforms essential for a healthy CGD sector; Consequent faster rollout could result in longevity of volume growth

• Niti Aayog envisages rollout of city gas distribution (CGD) networks in 326 cities by 2022. CGD bid rounds have not been a great success due to lack of speed, poor selection of geographical areas (GAs) and restrictive bid criteria.
  
• The Petroleum and Natural Gas Regulatory Board (PNGRB) has been working upon reforms to enable faster and more effective rollout.
  
• Our analysis suggests that reforms-led faster rollout could be the biggest driver for rerating of the CGDs through longevity to high volume growth.
  

Poor progress so far

• Since launch in 2008, we have seen eight rounds of CGD bidding so far - the last one is yet to be awarded completely.
  
• Of the 107 GAs that came up for bidding, only 51 have been awarded. The remaining bids were cancelled because of poor response and/or lack of proximity to existing gas network. Delays of as long as five years have been witnessed in award of GAs post launch of bidding round!
  
• Of the 51 GAs awarded, 35 have been awarded since 2015 and only 11 of these are operational. Of the 16 GAs awarded prior to 2015, 10 are operational - licenses for two were revoked due to non-compliance of Minimum Work Program (MWP).
  

Rollout of just 100 cities in next 10 years could result in volume CAGR of 8.5% for 20 years

• PNGRB has been mulling reforms that provide (a) equal footing to smaller but capable firms in bids, (b) rollout of relevant Gas, and (c) policy enablers for faster implementation.
  
• So far, we have seen limited participation by private players due to restrictive bid criteria. A total of 15 private entities have participated in the bid rounds so far, either alone or in partnership with PSUs. A total of 11 GAs have been won by these participants. We believe that participation of smaller players could result in emergence of innovative solutions.
  
• Against the aim of extending CGD in 326 cities by 2022, even if PNGRB rolls out just 10 cities per year, each city having a potential of a meager 0.2mmscmd, we estimate that it could result in volume CAGR of 8.5% for the next 20 years for the industry, combined with the growth from already awarded GAs.