According to CRISIL Ratings, the draft regulations by Petroleum and Natural Gas Regulatory Board (PNGRB) on city gas distribution network sharing could reduce uncertainty and encourage companies to enter lucrative markets such as Delhi, Mumbai and Ahmedabad. However, the increase in competition will not impact the incumbents as the tariff on network sharing will give them a sizeable cost advantage over new entrants.

The draft regulations propose the calculation of network tariff based on the cost of service plus a post -tax return on capital employed of 12 per cent. The implementation of these regulations could remove regulatory uncertainty in about 37 GAs, as per CRISIL. According to its estimates, the new entrants may have to pay Rs 6-9 per cubic metre as network sharing cost to the existing players in order to compete without incurring capital expenditure on laying the infrastructure. The maximum competition is expected to increase in the compressed natural gas segment, which has over 40 per cent share in overall demand.

Currently, the distributors in geographical areas (GAs) do not have competition even after the marketing exclusivity period has ended. This is due to the absence of regulatory framework to determine network tariffs for sharing common gas infrastructure. The licenses for these GAs were awarded before the PNGRB was established.