Mumbai, May 29: Demand for city gas distribution is expected to see strong growth because of the focus on clean environment and competitiveness of gas vis-a-vis other fuels.
City gas distribution is an interconnected network of pipelines and associated equipment to transport natural gas. It supplies compressed natural gas (CNG) to vehicles and piped natural gas to households and industrial and commercial establishments.
A strong growth is forecast for the sector, which is under-penetrated at present.
Piped gas is mostly concentrated in Delhi, Maharashtra and Gujarat.CNG penetration in India is 5.5 per cent, lower than other countries such as Pakistan (26 per cent). The reach of residential piped natural gas is at a little over 1 per cent, much below countries such as China.
According to a report by Edelweiss Securities, the setting up of infrastructure in new circles will open up huge opportunities for growth.
Some states have also taken up measures in favour of CNG. Delhi has introduced a series of directives for public transport (including radio taxis) to use CNG to curb pollution.
Diesel cars with an engine capacity of over 2000cc have been banned in Delhi. Also, diesel cars over 10-years-old are being phased out.
The Centre has allowed priority allocation of cheaper APM (administered pricing mechanism) gas to domestic city gas distribution operators. There are project exclusivities for a distributor in a particular area.
There is a five-year marketing exclusivity for new cities to encourage faster penetration. During this period, no other entity can lay any physical network.
Companies engaged in the city gas business also get a network exclusivity of 25 years that can be extended by 10 years if the operator meets all terms and conditions.
"CNG is extremely competitive vis-a-vis petrol (around 50 per cent advantage) and diesel (around 20 per cent advantage), with a short payback period of two years to convert a private car from petrol. Residential piped natural gas is uncompetitive compared with subsidised LPG. The growth in the residential sector, therefore, is driven by the ease of use. However, piped natural gas is competitive compared with unsubsidised LPG,'' analysts in the report said.
To boost city gas distribution, the Centre will add 28 circles to the existing 51 through the fifth and sixth round of auctions.