The city gas distribution (CGD) segment has made remarkable progress in the past few years and several initiatives have been undertaken to expand the CGD network. Huge investments are expected to be made in over 130 new geographical areas awarded under the ninth and tenth bidding rounds. At the CGD India 2020 conference, Rajiv Sikka, Chief Executive Officer, Indian Oil-Adani Gas Private Limited (IOAGPL) talked about aligning the infrastructure development with anchor customers, creation of a conducive ecosystem for growth and major challenges faced by CGD companies. Given below are the key highlights from his address…
CGD has emerged as a sunrise sector in recent years. Increasing government focus, easing of regulations, laying out a supportive policy framework, and recognising the importance of gas as a fuel to curb carbon emissions are some of the factors that have lent momentum to the sector. Undoubtedly, there are significant growth prospects, as only 10-15 per cent of the national area has “evolved CGD markets”, with the remaining areas yet to mature as gas markets. The task at hand is both enormous and difficult. CGD companies thus need to focus on certain aspects of their business that can aid them gain traction in the growing industry.
While it is important to have detailed plans for CGD infrastructure development, a crucial aspect is aligning these plans with anchor consumers alongside the planned infrastructure, in a bid to assure demand volumes. To this end, marketing natural gas as a “product” holds the key. CGD companies, thus, must have a strategy in their business plans for customer acquisition that complements the planned infrastructure development. Without this approach, the minimum works programme (MWP) will merely be a set of cold numbers, which even upon achievement will not serve the overall purpose of growing the business. CGD entities focussed solely on the creation of CGD infrastructure should have adequate demand build-up to stay afloat in the business in the long run.
“CGD companies, thus, must have a strategy in their business plans for customer acquisition that complements the planned infrastructure development.”
Devising an effective review mechanism is imperative for a CGD player. As pipeline networks and last-mile connectivity spur lines are spread across vast areas, timely execution and management of the infrastructure calls for planned reviews. Besides the pace of progress, due attention needs to be given to the type of models that are to be adopted to run the business.
Engagement with stakeholders
This is perhaps the most important yet most overlooked part of the country’s CGD business. The importance of creating an ecosystem that is conducive to higher consumption of gas as a fuel is often missing in many markets. For example, the northern region (especially Haryana and some parts of Uttar Pradesh) has these ecosystems in place. In these areas, awareness about use of cleaner fuels such as gas is present across the value chain of the CGD business – end users, equipment manufacturers, pipeline manufactures, local and state governments, as well as oil marketing companies. Such an ecosystem is a prerequisite for the overall success of the CGD business and calls for effective dialogue across all the stakeholders in the value chain. To achieve this, knowledge sharing initiatives with government authorities, information dissemination across target consumers, and consistent engagement with ancillary industry groups (manufacturers of compressors, dispensers, etc.) is necessary. In some cases, coordination with vehicle manufacturers can also emerge as an important way of assuring volumes. A given CGD company may consider holding regular dialogue with car makers to coordinate timelines for gas infrastructure availability with the launch of CGD variants of certain car models.
“The importance of creating an ecosystem that is conducive to higher consumption of gas as a fuel is often missing in many markets.”
Another critical aspect is the policy framework. Since different states have different priorities, policies of some states are not suitable for the growth of the CGD business. In this backdrop, CGD companies’ engagement with the state government is essential. Making the authorities aware of successful initiatives taken in some states can nudge other state governments to take similar steps. States such as Delhi and Rajasthan are cases in point. The Delhi Development Authority made land available to Indraprastha Gas Limited (for setting up gas stations) at a remuneration which was 25 per cent lower than the prevailing market prices, while the Rajasthan government waived half the registration fee for buyers of cars running on gas. Steps to speed up the process of requisite approvals, aid in land acquisition, etc. are a few ways in which a CGD company would benefit from regular dialogue with the state government and associated authorities.