1.

CITY GAS DISTRIBUTION

1.1 INTRODUCTION

With the growing concern about environmental aspect Government Of India started CNG rollouts in citiessuffering from increasing pollution. The CNG demand got a boost with the Supreme Court directive on pollution reduction in 12 major cities in India and hence provided a platform to a highly ambitious sector of City Gas Distribution in cities like Delhi. Mumbai, Surat, Lucknow etc. Various organizations like GAIL, IOCL, BPCL, GGCL entered into this sector by forming JVs with other players and provided the sector the necessary thrust it deserve. The CGD network caters to the supply of Piped Natural Gas (PNG) to domestic Households (HH) & small commercial/industrial establishments & CNG to automobile sector. Considering CGD as the last milestone of Indian gas chain lot of efforts has been done by various players and GoI to ensure last mile connectivity of gas which has been substantial in the current decade. With the introduction of PSUs in all of the sectors of the Indian gas chain the gas chain has become more structured and organized. Currently major oil PSUs like Indian Oil Corporation Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd are providing substantial support in all parts of the gas chain with the formation of JVS like Green Gas Ltd (GGL) in Lucknow & Agra, Indraprastha Gas Ltd (IGL) in Delhi-NCR etc. With a vision to empower most of the cities and the citizens by providing access to natural gas oil PSUs are coming up with more plans on CGD network development. The demand pattern (Gas) zeroed by the Ministry of Petroleum and Natural Gas (MoPNG) in its Draft Paper on Utilization of Natural Gas-2007 for CGD network is as follows: The consumers of NG via CGD network are classified into different categories based on their capacity and end use. They are broadly classified as: 1.2 Type of Consumer Description 1. Domestic consumers: Consumers demanding NG for cooking as well as for heating water etc. 2. Commercial consumers: While Hotels, Restaurants, Sweetshops, Hospitals, Offices etc. would primarily require gas for the Cooking and Hot Water requirement, there are large number of applications within such segments that can use gas. 3. Industrial consumers: Industrial Consumers are classified in two primary categories, the Large Scale Industries (LSI) & Medium & Small Scale Industries. 4. Transport Sector: Transport Sector need NG for the transportation purpose and catered through the development of Compressed Natural Gas stations network.
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All four types of consumers consume different amount of Natural gas in performing their operations. They need NG via different channels and the form in which they receive NG is also different (like automobiles receive it in the form of CNG while domestic HH receives it in the form of PNG) leading to a different prices for them and creates a different margin with each MMSCMD of gas supplied to them. In a nutshell, the profitability reduces from commercial consumer to bulk consumer. 1.3 COMPRESSED NATURAL GAS (CNG) Compressed Natural Gas, in short CNG is nothing but Natural gas compressed for the use of transport sector. Due to its low density, it is compressed to a pressure of 200-250 kg/sq. cm to enhance the vehicle on-board storage capacity. Principal constituents of NG are Methane and Ethane, but most gases contain varying amounts of heavier hydrocarbons that are normally removed by processing. After recovery of the heavier hydrocarbons, the remaining gas, known as lean gas, is returned to the pipeline system. Natural gas is drawn from pipeline system for compression and distribution as CNG. Predominantly Methane is available in the lean gas; hence CNG contains mostly methane (normally not less than 85%). CNG is one of the safest fuels as it has a high auto-ignition temperature of about 540 degree centigrade and a very narrow range of flammability (i.e. 5% to 15%). In other words, if CNG concentration in the air is less than 5% or above 15%, it will not burn. Further, it is lighter than air and in case of any leakage, natural gas will go up in the air and chance of any ignition is remote. 1.4 Types of CNG stations

CNG stations are of four major types depending upon the structure and operations: CNG Mother Stations: Mother Stations are connected to the pipeline and have high compression capacity. These stations supply CNG to both vehicles and daughter stations through mobile cascades 6 . The Mother Station requires heavy investment towards compressor, dispensers, cascades, pipelines etc. CNG Online Station: CNG vehicle storage cylinders need to be fitted at a pressure of 200 bars. Online stations are equipped with a compressor of relatively small capacity, which compresses low-pressure pipeline gas to the pressure of 250 bars for dispensing CNG to the vehicle cylinder. CNG Daughter Station: The Daughter Stations dispense CNG using mobile cascades. These mobile cascades at daughter stations are replaced when pressure falls and pressure depleted mobile cascade is refilled at Mother Station. The investment is least among all types of CNG stations. CNG Daughter-Booster Station: Installing a booster compressor can eliminate drawbacks of daughter stations. The mobile cascade can be connected to the dispensing
2

system through a booster. Daughter booster is designed to take variable suction pressure and discharge at constant pressure of 200 bars to the vehicle being filled with CNG. The diagram shown below represents the actual flow of NG from trunk pipeline right up to the end user. 1.5 Characteristics of CNG vis--vis Petrol The quantity of CNG filled by the dispenser during refueling also depends upon pressure at the dispensing station. At maximum permitted filling pressure (200 bar), an amount of 8/9/10 Kg CNG is stored in 40/50/60 liter size cylinders respectively which is equivalent (approximately 11.2/12.5/14 liters of petrol equivalent. However the gas quantity depends on ambient condition and actual fill pressure. Since CNG is a gaseous fuel, storage capacity for CNG in a vehicle is comparatively less than that of petrol. A Fuel switch on the dashboard is fitted to enable the vehicle to run on petrol, in case it runs out of CNG. CNG has a much higher-octane value than petrol, making it a superior fuel. Due to absence of any lead content in CNG, the lead fouling of plugs is eliminated. Being a gaseous fuel, CNG mixes with air easily even at very low temperatures. Main features distinguishing CNG from Petrol and Diesel are:

Table 1. Comparison of CNG with respect to Petrol and Diesel

1.6 Economies of CNG The energy content per Kilogram (Kg) of CNG is very similar to that of petroleum based fuels, but it has lower energy content per unit of volume. The excellent knock resisting property of CNG allow use of a higher compression ratio resulting in an increased power output and greater fuel economy when compared to petrol. CNG can be used in engines with
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a compression ratio as high as 12:1 compared to normal gasoline (7.5:1 to 10:1). At this high compression ratio, natural gas-fuelled engines have higher thermal efficiencies than those fuelled by gasoline. The fuel efficiency of CNG driven engines is about 10-20% better than diesel engines. Use of CNG in vehicles results in higher mileage per unit due to its superior characteristics. The cost of CNG is also very competitive to that of petrol and diesel. Following table depicts the price advantage of CNG vis--vis other petroleum fuels currently being used in vehicles.

Table 2. Average Distance traveled is 100 km/day.350 operational day in a year

Table 3. Distance traveled is 100 km/day.350 operational day in a year 1.7 STRUCTURE OF CGD NETWORK

Setting up of a CGD network is a big task in itself in terms of management of public private interest. It is not only a matter of distribution and marketing of the product it is also about creating a feeling of security in the mind of prospective customers. PNGRB board has provided the guidelines in the form of its Draft Paper on Access Codes which has clearly mentioned the responsibilities associated with the transporter and shipper making things more clear to both parties. The essential elements of a CGD network are: 1. Steel grid pipeline 2. City Gate Station (CGS) 3. District Regulating Station (DRS) 4. CNG stations 5. Service Regulator (SR)
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All of the above mentioned facilities are directly related to each other and thus have a deep impact on the functioning of the whole CGD network. As far as the cost is concerned the establishment of these fundamental facilities bring major cash outflow to the distribution company. The networking is defined as: 1. City Gate Station: The point where custody transfer of NG from high / medium pressure transmission pipeline to the CGD network takes place. 2. Distribution Pressure Regulating Station/ District Regulating Station: Distribution Pressure Regulating Station or District Regulating Station (DPRS) means a station located within authorized area for CGD network having isolation, metering, pressure regulating and overpressure protection devices. 3. Service Regulator: It reduces the gas pressure from 4 BAR to 100 mBAR and ensures the flow of gas at constant pressure at all time. 4. Meter Regulator: Installed before the meter, the meter regulator reduces the gas pressure from 100 mBAR to 21 mBAR.

2.

METHODOLOGY FOR CALCULATION OF POTENTIAL NG DEMAND

The potential industrial NG demand for year 2012-13 is taken from the report submitted to IOCL by MDRA group out of which three scenarios were drawn having a switching over pattern of 45-59%, 60-74% and 75-89% for pessimistic, realistic and optimistic scenarios respectively. The PNG demand is calculated from the Indane LPG sales in the respective towns and cities which were extrapolated to the total sales in that city/town by the market share of Indane LPG in respective town/city. The result thus procured is converted into the total LPG demand after considering the fact that domestic LPG accounts for 96% of the total LPG consumption. The figures thus obtained are converted into NG equivalent using conversion factors and total PNG demand is calculated. CNG demand in the city/town is calculated from the vehicular population profile of the city and some statistics related to it (mileage, avg. daily distance travelled). The total CNG demand is thus converted to NG to calculate the potential NG demand. While determining the PNG and CNG demand the switching over pattern is taken constant (at 10% upto year 2012-13) to create parity amongst all the cities/towns considered in the study.

2.1

CRITERIA FOR CITY SELECTION

While total expected demand of NG can be one of the major benchmark for the selection of town/city for CGD network establishment some other factors like current status in terms of EOIs and State Govt. policies and moves can also play major role in making decision. On the basis of the experiences of IGL and MGL a checklist is prepared covering most important aspects of city town selection in addition to the expected NG demand. Selection Criteria 1. 2. 3. 4. 5. 6. 7. Closeness to the proposed RLNG pipeline Administrative action by the state to promote NG in the city/town Total population of the city/town Status of the city/town in terms of EOI to the PNGRB Board Existing LPG and CNG demand Infrastructure of the city/town Level of urbanization in the city/town

2.2

Analysis of Ghaziabad City

Ghaziabad, declared as a district in year 1976 and is one of the most important districts of Uttar Pradesh. The major reason for being boastful is the development of industries in it which ranges from Iron and steel industries to food processing and Automobile parts. The major contributing factors to the increasing population of Ghaziabad are its closeness to the national capital (it is the part of NCR) and the Industrial Policy of Delhi state which restricted the growth of heavy and medium industries to control pollution. All this contributed to the ever growing industries in Ghaziabad District. 2.2.1 Population In 2011, Ghaziabad had population of 4,661,452 of which male and female were 2,481,803 and 2,179,649 respectively. There was change of 41.66 percent in the population compared to population as per 2001. In the previous census of India 2001, Ghaziabad District recorded increase of 46.89 percent to its population compared to 1991. The initial provisional data suggest a density of 3,967 in 2011 compared to 2,800 of 2001. Total area under Ghaziabad district is of about 1,175 sq.km. Average literacy rate of Ghaziabad in 2011 were 85.00 compared to 69.74 of 2001. If things are looked out at gender wise, male and female literacy were 88.16 and 81.42 respectively. For 2001 census, same figures stood at 79.84 and 58.01 in Ghaziabad District. Total literate in Ghaziabad District were 3,398,407 of which male and female were 1,871,853 and 1,526,554 respectively. In 2001, Ghaziabad District had 1,899,735 in its total region

2.2.2 Industries Ghaziabad Industries are vital to the economy of the state of Uttar Pradesh. Uttar Pradesh is rich in terms of mineral deposits. These natural resources being rightly exploited over the years has not only benefited the state but also the helped India cut down on a huge amount of expenditure. Some of the Important Industries of Ghaziabad 1. Rathi Ispat Limited: This steel manufacturing plant, founded in 1969, had started giving output a year later in1970. With over four decades of dedicated service, the company has indeed a long way to go. It specializes in the production of cast iron products and hot rolled iron products. The most important step taken by this company was to manufacture TOR steel in collaboration with ISTEQ corporation, Luxemburg.

2. Ghaziabad Ispat Udyog Limited: This steel manufacturing company's reputation is evident from the market return that it has achieved persistently over the years. The company has to its credit, a number of prestigious awards. It is in fact a ISO 9001:2000 company. 3. Aerotech Equipments & Projects Pvt Ltd: If there is one company that has earned itself a steady reputation for quality output and at the same time has discerned to the need of a wide range of industry, then it is this company. It specializes in the manufacture of different kinds of fans, filters, coolers, dampers and such other parts, required by other industries.

2.3

Industrial demand estimation of NG in Ghaziabad district

The total demand of NG in Ghaziabad district (as per MDRA report) stood at a level of 1.172616 MMSCMD and the distribution of NG demand in different demand centers is shown in the picture below:

The above shown picture also illustrates the probable NG demand for the upcoming industrial areas. Out of the above mentioned demand centers Sahibabad Site IV Ind. Area and South GT Road Ind. Area may prove out to be the best pick. Rathi Thermex Super and Modi Industries Ltd. are the major promoters of the expected NG demand in Ghaziabad district with a potential of 84880 and 61000 MMSCMD respectively.

The probable NG demand as per the three scenarios is: Scenario Pessimistic Realistic Optimistic Total Expected Industrial Demand Of NG (2012-2013) in SCMD 562856 738748 914642

In the above mentioned scenarios, the conversion rate is calculated as: Pessimistic Scenario: 45-59% of total estimated demand projection Realistic Scenario: 60-74% of total estimated demand projection Optimistic Scenario: 75-89% of total estimated demand projection

2.4

PNG demand estimation for Ghaziabad City 261537 39989.472 152.9018 60 66649.2 69426.17 237760.8445 0.2377608445 0.02377608445

No Of Existing Customers for Indane Sale of Indane LPG in last one year (in MT) Per capita consumption Market share of Indane In LPG business (in %) Total domestic LPG demand in one year Total LPG demand in Ghaziabad City* Total demand of NG in SCMD (1 MT LPG= 1250 SCM NG) Total demand of NG for PNG supply (in MMSCMD) Expected contribution upto 201213 @10% (in MMSCMD) Table 4- Estimated PNG demand for Ghaziabad City

(Note*- Total LPG demand in Ghaziabad is calculated by considering that domestic LPG demand counts for 96% of total LPG demand)

2.5

CNG demand estimation for Ghaziabad City

Type of vehicle

No. of Daily Vehicle average dist. Covered by Vehicle(in Km)

Mileage (in km/kg)

Total consumption of CNG in kg per year*

Total consumption of NG in SCMD (1kg CNG=1.28 SCM of NG)

Expected contribution upto 2012 13 @ 10%

BUS 3- WHEELER 4- WHEELER TOTAL

7228 11165 50479 68872

300 100 100 500

4 40 21

197866500 10188062.5 87737309.52

693888 35728 307681.523 1037297.523

69388.8 3572.8 30768.1523 103729.7523

Table 5- Estimated CNG demand for Ghaziabad City Note*-[(daily avg dist/mileage)*365*no. of vehicle]

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3.
3.1

REGULATIONS
PETROLEUM & NATURAL GAS REGULATIONS BOARD (PNGRB) ACT

PNGRB act was enacted on 31st March 2006 to serve as a platform for the establishment of Petroleum & Regulatory Board (PNGRB) to regulate the Midstream and downstream operations (refining, processing, storage, transportation, distribution, marketing and sale) of petroleum, petroleum products and natural gas. The PNGRB act was established to protect the interest of consumers and entities engaged in specific activities relating to petroleum, petroleum products and natural gas and to ensure uninterrupted and adequate supply of petroleum, petroleum products and natural gas in all parts of the country and to promote competitive markets and for matters connected therewith or incidental thereto. The act provides the framework for the PNGRB Board by providing all essential elements of a board ranging from the elementary definitions to the steps to authorizing an entity laying or setting up a pipeline network. The PNGRB act also provides the structural framework of the board and defines the powers associated with the board. The PNGRB board thus formed falls under the purview of MoPNG and act as an independent authority which acts as a watchdog for the entities engaged in any of the operations mentioned above.

3.2

THE PNGRB BOARD

The PNGRB board came into action on 1st October, 2007 and as it has been prescribed by the PNGRB act itself, the board came out with all the powers and duties associated to it. The board came out with an objective of regulating the Refining, processing, storage, transportation, distribution, marketing and sale of petroleum products, natural gas excluding production of crude oil and natural gas so as to protect the interest of consumers and entities engaged in specified activities and to ensure uninterrupted & adequate supply and to promote competitive markets. The board consists of a Chairperson, a Member (Legal) and three other members appointed by the Central Government. The chairperson is awarded with powers such as the powers of general superintendence and directions in the conduct of the affairs of the Board and in addition to presiding over the meetings of the Board, exercise and discharge such other powers and functions of the Board, as may be assigned to him by the Board. Functions of the board The functions of the board mentioned in the PNGRB act are as follows: 1. Protect the interest of consumers by fostering fair trade and competition amongst the entities 2. Register entities to11

 market notified petroleum and petroleum products and, subject to the contractual obligations of the Central Government, natural gas establish and operate liquefied natural gas terminals establish storage facilities for petroleum, petroleum products or natural gas exceeding such capacity as may be specified by regulations 3. Authorize entities to build, operate or expand a common carrier or contract carrier; lay, build, operate or expand city or local natural gas distribution network; 4. Declare pipelines as common carrier or contract carrier 5. Regulate, by regulations: access to common carrier or contract carrier so as to ensure fair trade and competition amongst entities and for that purpose specify pipeline access code transportation rates for common carrier or contract carrier access to city or local natural gas distribution network so as to ensure fair trade and competition amongst entities as per pipeline access code 6. In respect of notified petroleum, petroleum products and natural gas ensure adequate availability ensure display of information about the maximum retail prices fixed by the entity for consumers at retail outlets monitor prices and take corrective measures to prevent restrictive trade practice by the entities secure equitable distribution for petroleum and petroleum products; provide, by regulations, and enforce, retail service obligations for retail outlets and marketing service obligations for entities monitor transportation rates and take corrective action to prevent restrictive trade practice by the entities 7. Levy fees and other charges as determined by regulations 8. Maintain a data bank of information on activities relating to petroleum, petroleum products and natural gas 9. Lay down, by regulations, the technical standards and specifications including safety standards in activities relating to petroleum, petroleum products and natural gas, including the construction and operation of pipeline and infrastructure projects related to downstream petroleum and natural gas sector 10. Perform such other functions as may be entrusted to it by the Central Government to carry out the provisions of PNGRB Act.
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3.3

REGULATIONS FOR AUTHORIZING THE DEVELOPMENT OF CGD NETWORKS

These regulations are applicable to an entity which is laying, building, operating or expanding, or which proposes to lay, build, operate or expand a city or local natural gas distribution network (hereinafter referred to as CGD Network). The regulations also introduce the fact that the consumers having NG requirement of less than 50,000 MMSCMD will be supplied through the CGD network while the customers having requirement of 50,000-100,000 MMSCMD can be supplied through the CGD network or a separate NG pipeline but customers with a requirement of more than 100,000 MMSCMD of NG will be supplied by a separate NG pipeline only. Qualifying criteria for preliminary assessment The board carries out a preliminary assessment of the EOIs with respect to the following criteria: 1. Availability of NG. 2. Possible connectivity to an existing or proposed NG pipeline for supply of NG upto the city gate of proposed CGD network, including LNG supply, tank wagons etc. 3. Any other relevant issue considered necessary by the board. The Qualifying criteria for submission of application-cum-bid The qualifying criteria for the submission of application cum bid for the development of CGD network in a city is mentioned below: A. Payment of application fee along with application-cum-bid (no need if paid earlier) B. Technical capabilities 1. Entity should have laid HC pipeline of not less than 300 km on cumulative basis or developed a CGD network in the past; 1. Shall have a joint venture (not less than 11% equity) with a technically capable firm having experience of 300 km HC pipeline laying or development of CGD network; 2. Have intended to lay or build the CGD network on lump sum, turnkey or project management basis through one or more technically competent firms which should have a prior experience of laying not less than 300 km (on a cumulative basis) of HC pipeline or developed a CGD network in the past; or 3. Or it should have at least three technically qualified personnel on its permanent rolls having experience of not less than one year in: ROW acquisition and clearance. Design and acquisition of HC pipeline project.
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 Pre-commissioning including hydro-testing and restoring. Safety of HC pipeline and installations. 4. Entity should be technically capable of operating & maintaining a CGD network as per criteria namely: At least one year experience in operation and maintenance of a CGD network; Shall have a joint venture (not less than 11% equity) with a technically capable firm having experience of not less than 1 year in operations and maintenance of a CGD network; Entity intends to operate and maintain the proposed CGD network through an appropriate technical assistance agreement for a period of at least one year with another party having experience of at least one year in operations and maintenance of a CGD network; or Entity has an adequate number of technically qualified personnel with experience in commissioning, and operation and maintenance (O&M) of hydrocarbon pipelines and also has a credible plan to independently undertake the O&M activities for a CGD project on a standalone basis. It should have at least three technically qualified personnel on its permanent rolls having experience of not less than one year in: I. Commissioning of HC pipeline II. Operations and Maintenance of NG pipeline and NG installations including gas compressors. III. Commercial issues including gas pricing, gas measurement accounting, billing & collection. IV. Safety of NG infrastructure. C. The entity should meet the financial criterion mentioned in draft issued by PNGRB Board. D. The companies must be registered under Companies Act-1956 and if it is not; than it shall become a registered company under the act mentioned above. E. The entity shall furnish a bid bond for an amount equal to: Rupees 50 million for a population of 5 million and subsequently higher for the proportionate higher value of population. Rupees 30 million for a population of 1 million or more but less than 5 million. Rupees 20 million for a population of .5 million or more but less than 1 million. Rupees 15 million for a population of .25 million or more but less than .5 million. Rupees 10 million for a population of .1million or more but less than .25 million. Rupees 5 million for a population less than .1 million. F. The entity should not have been imposed by any penalty under section 28 or chapter 9 of the PNGRB act. The bid bond mentioned above is Encashed if an entity submitting the bid walks out. Released in case of the unsuccessful entity submitting the bid.
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 Retained till the prescribed performance bond is furnished at the time of authorization by the successful bidder. 3.4 Bidding Criteria The board has specified the areas of concern on the basis of which it identifies the best entity for authorizing of CGD network. The points on which substantial emphasis is given thus act as benchmark for evaluating the financial bids of the interested entities. Bidding criteria Weight assigned

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On the basis of above mentioned criterion points the score for each participating entity is calculated which highly depends on the weight assigned to each of the above mentioned criteria. Entity with highest composite score is declared successful in the bid. The grant of authorization is issued to the selected identity after it furnishes a performance bond of an amount equal to: rupees one hundred million or five percent of the estimated project capital cost, whichever is higher in respect of an authorized area with a population of five million or more; rupees sixty million or five percent of the estimated project capital cost, whichever is higher in respect of an authorized area with a population of one million or more but less than five million; rupees forty million or five percent of the estimated project capital cost, whichever is higher in respect of an authorized area with a population of half a million or more but less than one million; rupees thirty million or five percent of the estimated project capital cost, whichever is higher in respect of an authorized area with a population of quarter of a million or more but less than half a million; rupees twenty million or five percent of the estimated project capital cost, whichever is higher in respect of an authorized area with a population of one-tenth of a million ormore but less than quarter of a million; rupees ten million or five percent of the estimated project capital cost, whichever is higher in respect of an authorized area with a population less than one-tenth of a million. Considering the basis of the performance bond it has been considered that that the performance bond shall be revised by applying the above mentioned basis in case of experiencing any change in the estimated cost project on completion of financial closure. The rationale behind the introduction of this performance bond is to guarantee the timely performance by the selected entity so that it would meet the targets and service obligations as desired by the PNGRB board. 3.5 Pre and post commissioning activities

There are certain obligations which are imposed on the selected entities by the PNGRB board in an order to protect the interest of consumers of NG. Some of the mandatory clauses which provide the guidelines regarding the transfer of grant of authorization obtained by the entity and submission of financial approval are as follows: The entity should achieve a firm natural gas contract with its supplier in a transparent\manner on the principal of at an arms length for a period equal to or more than its exclusivity period within 90 days of authorization. The volume of the gas supply under the agreement should be equal to at least 50% of the volumes considered for defining the network tariff bid for each year of the exclusivity period.

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 The grant of authorization to the entity cannot be renunciated by way of sale, assignment, transfer or surrender to any other person or entity during the period of 3 years by the date of its issue.The pre commissioning activities/obligations of authorized entity includes submission of progress report on quarterly basis including clearances obtained, targets achieved, expenditure incurred, work in progress etc. The pre-commissioning activities also include the compliance of entity to the relevant regulations for technical standards and specifications regarding health and safety concerns to ensure smooth commissioning and operation of CGD network. The board also monitor the progress of entity in achieving various targets with respect to the CGD network project and can provide remedial action in case of any deviations or shortfall from the mentioned targets. Service obligations for the entity with respect to the PNG and CNG supply are as follows: The entity may take an interest-free refundable security deposit from domestic PNG Customer towards security of the equipments (riser isolation valve before the metering unit; ten meters of pipe up to the metering unit; metering unit; five meters of pipe or tube from the metering unit up to the excess flow check valve-cum-isolation valve; excess flow check valvecum-isolation valve; and suraksha hose pipe of standard size connecting the domestic PNG burner) and facilities including the labour cost of installation towards last mile connectivity, that is, between the riser isolation valve before the metering unit and the suraksha hose pipe connecting the burner in the customers premises for an amount not exceeding rupees five thousand for a single connection. The entity shall not exert any undue influence on any domestic PNG customer to purchase natural gas burner stove or avail of any other service not connected with the supply of natural gas. The entity shall convert the existing LPG burner stove of a prospective domestic PNG customer into natural gas burner stove free of charge. The entity should maintain separate account books including detailed activities-based costing records to segregate direct, indirect and common costs alongwith the basis of allocation and the revenues earned. The authorized entity is not allowed to cross subsidize the costs between activity of transportation and marketing of NG in CGD network. There would be no preferential access allowed to the entity itself or to any other entity for the activity of transportation of NG in CGD network. The authorized entity is solely responsible for carrying out the technical and safety audits. The authorized entity is bound to meet the service standards prescribed in PNGRB regulations 2008.

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4. EXCLUSIVITY
The PNGRB board offers some exclusive rights to the authorized entity in an order to maintain the interest of the entity laying or building the CGD network. This exclusivity is offered in the form of Marketing exclusivity and exclusivity for laying and building the CGD network. The rationale and reasons behind offering of these exclusivities to the authorized entity are explained below: The exclusivity offered is envisaged with a view to facilitate the development of a planned and integrated CGD network alongwith the vision of providing some incentives to the entity for its investment. The exclusivity also facilitates the integrated work by the same and hence leaves minimum space for any delay in work progress. Exclusivity also offers the pace and speed required in the initial phase of the development of CGD network in a particular city and makes the authorized entity solely responsible for not meeting the desired targets. The exclusivity for the laying and construction of the proposed CGD network is offered keeping the economic life of the project and hence offered for the time period of 25 years (economic life of the project) while the marketing exclusivity is offered with keeping NG demand build up in the city or local area and hence offered for the time span of 5 years only (for the entity operating after the appointed day) 4.1 Exclusivity for laying, building or expansion of CGD network

The board may allow the entity laying, building or expanding the CGD network for the economic life of the project in subject to the following terms and conditions: The entity will continue the expansion work throughout the economic life of the CGD project by technically upgrading the network on time to time basis and will carry out the replacement work needed to ensure the smooth operation of the CGD network irrespective of the requirements pre and post-exclusivity period. The entity is also supposed to meet the service obligations even during the post-exclusivity period. The economic life of a project starting on or after the appointed day commences from the grant of authorization to the entity. 11 Appointed day stands for the day of establishment of the PNGRB Board (01-10-2007) The further extension of the period of exclusivity solely relies with the decision of the PNGRB . The board may or may not extend the period of exclusivity in a block of ten years at a time,

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depending on the satisfactory compliance of the entity with the service obligations and quality of service norms provided in the PNGRB notifications. Non compliance to the service obligations may lead to the cancellation of the authorization and exclusivity of the entity.

5. NETWORK TARIFF AND COMPRESSION CHARGE FOR CNG

The cost of NG supplied in its compressed form is determined on a different basis which is been exhaustively referred in process of authorization by the PNGRB Board. The basis for determination of CNG price are clearly mentioned in the notification (dated March, 2008) of PNGRB Board. The entity to which these regulations apply is supposed to submit all technical, operating and financial data of the CGD network project required by the board for the determination of the network tariff and compression charges for CNG. The Discounted Cash Flow methodology has been adopted by the PNGRB board in calculating the network tariff. 5.1 Procedure for determination of network tariff and compression charge for CNG

The network tariff and compression charge for CNG in a CGD network shall be determined by considering a Reasonable Rate of Return13 on normative level of capital employed plus a normative level of operating expenses in the CGD network. Return on total capital employed for network tariff and compression charge for CNG Return determined separately for capital employed in common infrastructure (pipeline from tap-off point to the City Gate Station), online compressor and related facilities excluding land for online compressing etc. Reasonable rate of return is applicable on total capital employed and the entity is free to leverage the financing in any suitable manner. Total capital employed = Gross fixed assets in project Accumulated depreciation + Normative working capital14 Gross Fixed Assets shall be equal to their actual historical cost of acquisition (including cost of replacement and improvement) or that normatively assessed by the board, whichever is lower. Operating Cost Cost incurred in operation and maintenance of common infrastructure of CGD network is computed separately in determination of network tariff while it should be computed separately for online compressor facilities (for compressing NG into CNG) in determination of compression charges for CNG over economic life of project on actual or normative basis whichebver is higher over the specified cost heads (e.g. consumables, utilities, salaries and wages, repairs and maintenance, depreciation on fixed assets etc.) Volume to be considered The volume is used as a divisor for determination of unit network tariff and unit compression charges should be equal to:
19

 Actual volume of NG transported in the network Actual volume of NG compressed

( Discounted Cash Flow refers to equating the inflows from the projected revenue earnings out of network tariff and compression charge for CNG with the outflows of capital and operating expenditures over the economic life of the project by discounting these flows at the reasonable rate of return. The volumes and outflows are estimated over the economic life which results in the determination of the network tariffs and compression charge for CNG required to be earned by the project to achieving the reasonable rate of return. Rate of return on capital employed == 14% post tax (Remain fixed for economic life of network), considering rate of return on long term risk free govt. securities. Normative Working Capital = 20 days of operating cost excluding depreciation.) 5.2 Review of network tariff Review of network tariff is carried out separately for each review period. The review period normally considered for 5 years Past and present performance of the entity is monitored by the Board. Board can carry out the review in between two review periods in case of any emergent condition mentioned in the draft

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6. Learnings & Suggestions

6.1 LEARNINGS FROM THE STUDY As the time is passing by the competition in City Gas Distribution business is increasing. Recently the EOIs submitted by Reliance confirm stiff competition in near future. Now the decision to set up CGD network in a particular city has become mandatory to the already existing companies having a robust LPG and Liquid fuel retail network. Peeking into the future gives an impression that the consumption of Petroleum liquid fuels and LPG is going to decrease due to the increase in consumption of much safer and cleaner form of fuel like Natural Gas. The OMCs like IOCL, BPCL and HPCL which are having control in LPG and liquid fuel retailing in most of the states are now forced to introduce their own CGD network in prospective cities and thus increase their product line in an order to maintain their revenues. Similarly industrial consumers are supposed to be tapped first, as industries shows increasing economies of scale and have shorter span of payback period. In addition to above, increasing demand of NG in states also pushing the retail companies to go for more and more LNG contracts to ensure required NG supply as per their future vision and local demand.

6.2

SUGGESTIONS

Following measures for the PSU to establish sound market portfolio in Gas marketing; The OMC should equip its existing ROs on National Highways connecting the above selected city to Delhi with CNG dispensing facilities. In this way the OMC will be able to register its presence in the city from the neighboring state itself and hence will catch the interest of all types of CNG customers. The move will also work out in a positive manner for the industrial consumers and will facilitate the need of NG in their existing or future industrial plans. The PNG distribution process should be started from the Panipat refinery township in first phase of development in an order to achieve increasing economies of scale. This move will enable the OMC to get authorization by the PNGRB Board. Simultaneously during the course of upgrading existing ROs on highways, existing ROs of different companies having location in remote area of the city or outskirts should be contacted for franchise option. In this way the OMC will be able to generate a good amount of money during the initial stages which will be a profitable venture with the outlets of other OMCs. In return the company will receive increasing market presence and credibility.

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References Market Demand Study (industrial Demand) for RLNG on proposed Dadri Panipat pipeline- by MDRA group. http://www.censusindia.gov.in http://www.indiastat.com http://www.infraline.com Basic datasheet of Ghaziabad from Census of India 2001 http://iglonline.net http://mahanagargas.com http://www.gglonline.net PNGRB regulations on exclusivity, authorization and network tariff estimation. Data from RTI of Ghaziabad http://rtiindia.org http://indane.co.in http://pngrb.gov.in

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