IRM Energy Private Limited (IRMEPL), a group Company of Cadila Pharmaceuticals Limited, is an energy enterprise developing natural gas distribution projects across various districts in the country for industrial, commercial, domestic and automobile customers. During the sixth round of bidding, IRMEPL was awarded the authorisation to lay, build and expand city gas distribution (CGD) networks in the geographical areas (GAs) of Banaskantha, Gujarat and Fatehgarh Sahib, Punjab. Subsequently, it was awarded the authorisation of Diu GA, Union Territory of Daman & Diu, and Gir Somnath GA, Gujarat, in the ninth round of bidding.

In an interview with CGDIndia, Karan Kaushal, Chief Executive Officer, IRM Energy, spoke about the current status of CGD networks operated by IRM, impact of Covid-19, future gas requirements, key challenges facing the CGD sector and its future outlook…

Q1. What is the current status of network development in the GAs authorised to IRM Energy under the various CGD bidding rounds (with respect to CNG stations, PNG consumers, steel and medium-density polyethylene [MDPE] pipeline network etc.)?

In July 2016, the Petroleum and Natural Gas Regulatory Board (PNGRB) authorised IRMEPL for the development of CGD network in the two GAs, under the sixth bidding round. The two GAs are located at Banaskantha district in Gujarat and Fatehgarh Sahib district in Punjab.

In Banaskantha, the largest district of Gujarat (excluding Rann of Kutch) bordering Rajasthan, IRMEPL has laid a network of 1,595 inch-km gas pipeline network (steel and MDPE pipeline). Out of the 25 operational CNG stations, 17 are under the dealer owned dealer operated (DODO) model under ‘IRM Energy’ branding. Besides, the company has recently achieved the milestone of connecting 20,000 domestic piped natural gas (PNG) customers in Banaskantha. In addition, IRMEPL has 85 commercial customers and 10 industrial customers in Palanpur and Deesa cities of the Banaskantha GA.

In the Fatehgarh Sahib GA, IRMEPL has laid a network of 392 inch-km of gas pipeline network (steel and MDPE). It is the first entity in Punjab to have a CNG mother station facility and to promote the ecosystem of natural gas in the adjacent districts. The company has been servicing compressed natural gas (CNG) compression requirements of other CGDs entities (Torrent Gas, Think Gas, Bharat Gas and Jay Madhok). It is currently operating five CNG stations in the GA. In a short span of time, the company has connected 30 industrial PNG customers in the steel town of Mandi Gobindgarh. These industrial customers have switched from polluting fuel like coal and furnace oil to PNG. Additionally, IRMEPL has 1300 domestic PNG customers and 12 commercial customers.

Diu and Gir Somnath GAs were awarded to IRMEPL in ninth round of bidding. IRMEPL was the first entity among all CGD entities awarded in ninth round to have commissioned city gate station and mother station facility. As on date, IRMEPL is operating nine CNG stations and have laid a steel network of 53 inch-km in this GA. Meanwhile, by December 2020, the company is expected to start connecting domestic households in Diu and Una towns.

Q2. What are the current gas supply sources? What is the mix of domestic gas and regasified liquefied natural gas (RLNG)?

IRMEPL’s current gas sources include Gas Authority of India Limited (GAIL), Indian Oil Corporation Limited (IOCL) and Gujarat State Petroleum Corporation (GSPC). IRMEPL is the first CGD entity to do a transaction (through trading partner) on Indian Gas Exchange to source spot RLNG. Since the company’s overall operation is CNG and PNG-D centric, domestic gas constitutes 80 per cent of its natural gas sourcing mix and the rest is RLNG. However, going forward, mix between domestic gas and RLNG is expected to change to 60:40, considering the expected rise in demand of industrial PNG in Mandi Gobindgarh.

Q3. What are the future gas requirements? How are they planned to be met?

By the end of 2020-21, the total demand for all three GA’s is expected to reach 0.40 million standard cubic meters per day (mmscmd). The R-LNG requirement will be 0.10 mmscmd and domestic gas requirement will be 0.30 mmscmd. Again, since there is a large share of CNG and PNG-D in IRMEPL’s demand profile, the company will be sourcing gas under the APM mechanism. By December 2020, the company will be also adding the R series gas from Reliance in its sourcing mix apart from the existing suppliers like GAIL, IOCL, GSPC, etc.

Q4. What has been the impact of Covid-19 on project implementation, funds availability and supply chain? How is IRMEPL planning to meet its minimum work programme (MWP) targets for the authorised GAs?

The pandemic situation has significantly impacted the current and upcoming plan of achieving the MWP milestone. There were delays in major activities like undertaking of survey for CNG stations and PNG domestic clusters, laying of steel and MDPE pipelines, procurement of equipment and materials for rolling out the plans for upcoming months, undertaking tendering process and selection of contractors and vendors, PNG domestic registration, PNG connection commissioning and installation, commissioning of pipeline, establishment of CNG stations, statutory approvals, curtailing operations, and works due to non-availability of staff and contractors.

IRMEPL has also requested PNGRB to consider declaring force majeure and extending MWP deadline owing to the disruptions caused by the Covid-19 pandemic.

Q5. What are some of the key issues and challenges faced by the CGD sector?

On a macro level, there is ambiguity on policy front. There have been statements from the authorities regarding freeing up domestic gas from the administered price regime which will have a significant impact on business viabilities. There is also a certain degree of uncertainty regarding the allocation of nominated quantity of natural gas under the administered regime. The other macro level issue remains the lack of push of CNG vehicles by the government like it has been doing for electric vehicles (EVs). Like EVs, CNG vehicles should also be subsidised and put under the green fuel category.

The immediate challenge is the delay due to Covid-19 pandemic and obtaining right of user permissions from government departments like PF, NH and railway and statutory permissions from explosive for CNG stations. The company has been constantly facing challenges from local bodies while executing pipeline laying work. In addition, there are several commercial issues like premium rates of land for city gas, district regulating and CNG stations; high road restoration and annual rent payable to statutory authorities; and use of low cost polluting fuels like coal and pet coke by the industries.

Q6. What are the company’s future network expansion plans? What are the capex requirements for the next two financial years (2020-21 and 2021-22)?

By the end of 2021-22, IRMEPL will double its existing current customer base of PNG domestic, industrial as well as commercial customers across all GAs.

Further, for the ease of customer and benefit of the public at large, IRMEPL has planned to augment its network of CNG stations across all operating GAs, especially in the GA of Diu and Gir Somnath. The company will be having more than 50 operational CNG stations by the end of 2020-21.

Over the course of next two years, the IRMEPL has planned to have additional capex of around Rs 800 million across all GAs.

Q7. What is the future outlook for the CGD sector?

CGD being the key consuming segments of natural gas is getting lot of policy attention from the government in recent years. Between 2014-15 and 2018-19 period, CGD sector sales volumes have grown from 14.8 mmscmd to 25.3 mmscmd, registering a compound annual growth rate of 15 per cent. Prior to the onset of Covid-19 situation, CGD was the second largest gas consuming sector in India and accounted for 20 per cent of total gas consumption.

India’s natural gas consumption is expected to nearly double over the next 10 years. This growth is primarily expected to be driven by CGD. The share of the CGD sector is expected to rise to 26 per cent with ramp-up in demand volumes in GAs awarded under ninth and tenth rounds of bidding. Upcoming bid rounds are likely to contribute to an increase in current CGD network coverage from 53 per cent of India’s area and 70 per cent of India’s population.