Published on 1/02/2018 5:36:37 PM | Source: Motilal Oswal Securities Ltd

Oil and Gas Sector - CGDs set for the next big leap - Motilal Oswal

Posted in Broking Firm Views - Sector Report| #Oil and Gas Sector #Motilal Oswal #Sector Report

CGDs set for the next big leap

PNGRB focusing on bidding reforms, expeditiously resolving pending issues

* The Petroleum & Natural Gas Regulatory Board (PNGRB) has often been on the wrong side of the wicket when it comes to supporting development of gas infrastructure, somewhat contrary to the very principles of its foundation.

* For a long time, it was without the minimum quorum required for taking necessary decisions, which hampered its functioning. With the quorum in place now, the board appears set to bring about the much-needed push to gas infrastructure in the country.

* We met one of the members of the board, recently. We present our key takeaways.

CGDs get immediate focus

* Since India’s cities are battling a severe pollution problem, the immediate focus seems to be on bringing out reforms in bidding criteria for new Geographical Areas (GAs) for City Gas Distribution (CGD) companies.

* All earlier rounds have seen bidding for ~107 GAs, of which only 51 have been awarded so far. Most of the bids were cancelled because of poor response and/or lack of proximity to existing gas network. PNGRB now intends to focus only on GAs that are within approachable limits of existing gas infrastructure.

* The board has also proposed measures that would result in a more level playing field. The existing norms favor those with much larger balance sheets.

* The board has invited comments on the draft proposal for bid reforms. It is also expected to discuss separately with other stakeholders like state governments to expedite implementation of CGD networks.

* A much larger number of GAs should come up for bidding in the coming weeks.

Incomplete pipeline work, ongoing litigation, and tariffs

* PNGRB cites several examples of pipelines that have been awarded but not completed. It is looking at taking stricter action against such companies, including possible revocation of the award and forfeiture of performance bonds.

* The board is also looking at formation of Special Purpose Vehicles and nominating PSUs for award of newer pipelines. Example: the latest extension of Jagdishpur-Haldia-Bokaro-Dhamra pipeline to the North East.

* The board has seen resistance from existing consumers who would be in a disadvantageous position post implementation of unified tariff. It is looking at various ways that could result in a win-win situation.

* The board is also contemplating whether there should be one unified tariff for all pipeline companies across India or whether it should be company-wise.


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