India’s Biggest Gas Distribution Auction To Boost Investments Fourfold, Says Crisil

India received 400 bids for its biggest city gas distribution auction yet as Asia’s third-largest economy seeks to increase the share of cleaner natural gas in its energy mix.

The bids were submitted for all 86 geographical areas offered in the ninth round of bidding, according to a statement by Petroleum and Natural Gas Regulatory Board. The technical bids would be opened between July 12 and 18, it said.

Adani Group emerged as the top bidder, eyeing as many as 52 cities, GAIL Gas Ltd., the city gas distribution arm of state-owned GAIL India Ltd., put in bids for close to 30 cities while Indraprastha Gas Ltd. put in bids for 13 cities, newswire PTI reported. Essel Infraprojects Ltd., the infrastructure arm of the Subhash Chandra-led Essel Group, has put in seven bids. India Gas Solutions Pvt Ltd., an equal joint venture between Reliance Industries Ltd. and U.K.’s British Petroleum Plc., dropped out at the last moment, PTI reported citing unnamed sources.

A World Health Organisation study released in May listed 14 Indian cities among the world’s 20 most polluted. Efforts to increase the share of natural gas consumption can help reduce kitchen and auto emissions as part of the global pledge to keep the average increase in temperature below 2-degree Celsius.

As many as 86 geographical areas in 174 districts are on offer—higher than the previous edition. Bidders have been asked to quote the number of compressed natural gas stations to be set up and number of domestic cooking gas connections to be given in the first eight years of operation.

Investment Boost Likely

The ongoing round will see a fourfold rise in investment, ratings agency Crisil said in a report. The government expects to net Rs 70,000 crore from winning bidders, or nearly four times the Rs 15,000-18,000 crore that was invested in the year ended March 2018.

The government is targeting to raise the share of natural gas in the primary energy basket to 15 percent from the current 6 percent in the next few years, PTI quoted Oil Minister Dharmendra Pradhan as saying. The government aims to supply piped gas to 1 crore households — or nearly thrice the current subscriber base — by 2020.

The latest auctions will see participation of only serious players due to the revised bidding norms, ES Ranganathan, managing director of Indraprastha Gas Limited, had told BloombergQuint over phone. “There’s a cap on bank guarantee charges and net worth requirements of the parties who can quote are specified.”

The Petroleum and Natural Gas Regulatory Board revised bidding norms for licences to retail CNG and piped cooking gas in cities. The new norms focus on parameters such as selecting winners on the basis of the number of connection to consumers and CNG stations, and the length of gas pipelines the bidders promise to achieve in a given time frame.

“Monitoring mechanism has to be very tight and strict action should be taken against those not fulfilling the commitments made,” said Ranganathan. Elaborating on the bidding criteria, he said: “60 percent weightage will be given to domestic connection numbers, 20 percent to number of CNG stations and 10 percent to the number of pipelines to be laid.”

Ranganathan said giving 60 percent weightage to domestic connections is “slightly too much”. “Equal weightage should have been given to all the three parameters.”

The draft rules also require bidders to offer a fixed performance guarantee, ending the previous practice where the provider of higher guarantee always won.

CRISIL said it expects this round of auctions to receive a better response due to the government’s favourable policies. “Since city-gas distribution is more profitable in larger cities, licences for them are expected to draw greater interest. Bidders are expected to favour geographical areas adjacent to existing pipeline networks.”

(Updated with PTI’s correction to an earlier report that misstated that the RIL-BP joint venture had submitted bids)