BW Communities

High Demand, Low Supply

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Source: Indraprastha Gas Limited It is a curious situation. On one hand, the government limits supply of gas — Piped Natural Gas (PNG), Compressed Natural Gas (CNG) — to Indraprastha Gas Limited (IGL), the sole supplier of PNG to households and industries, and CNG to vehicles in the National Capital Region (NCR), which includes besides New Delhi, the towns of Noida, Greater Noida, Faridabad, Gurgaon and Ghaziabad. On the other hand, it pursues a policy that stimulates demand for gas, which then exceeds the supply. Since no other supplier is permitted in this area, IGL ends up drawing more gas — from Gail India, another government-promoted company — than the stipulated limit, and is saddled with a fine by the latter. Now, IGL has gone back to its majority owner — the government, who else — to redress the situation. IGL — a joint venture of Gail India, Bharat Petroleum Corporation (BPCL) and the Delhi government — was permitted by government policy to draw for Delhi a maximum 2 mmscmd (million metric standard cubic metres per day) of gas from Gail under the administered price mechanism (APM). But an increase in demand has forced IGL to draw 0.7 mmscmd more than the agreed allocation limit, inviting overdraw charges of Rs 30 crore from Gail. “The levy is seriously eroding our margins,” says Rajesh Vedvyas, managing director of IGL, in a letter to the secretary of Ministry of Petroleum and Natural Gas and senior officials. Demand for CNG, in particular, increased after Delhi’s public transport fleet, autorickshaws and taxis were asked to convert to CNG by the Supreme Court, and a significant number of private cars also converted to CNG after petrol and diesel prices were raised last year. In recent times, two other factors have contributed. One, lack of CNG stations in the other NCR towns — of 170 CNG stations in the area, 164 are in Delhi. So, cars from neighbouring towns have very little option but to refuel in Delhi. Besides, CNG in Delhi is cheaper than in neighbouring states (because of additional state taxes) by more than Rs 3 per kg, which is an additional incentive for cars passing through the capital to fill up there. Moreover, as per a Supreme Court order, IGL also has to supply 0.25 mmscmd of natural gas to Adani Energy in Faridabad and Haryana City Gas Distribution. So, that also eats into IGL’s already meagre quota of gas for consumers. IGL has now requested the government to merge its APM allocation for Delhi with NCR’s (2.0+0.7) with effect from 1 July 2009, which the petroleum ministry is considering. But it will probably have to pay up the fine nevertheless. “It relates to violation of an agreement, and sanctity of an agreement has to take precedence over everything,” says a senior ministry official. Agrees Kumar Manish, CNG specialist and associate director at consulting firm KPMG: “Tomorrow fertiliser sector or power plants could overdraw and seek revocation.” The solution, too, lies with the government. Having failed to convince other states to set up more CNG stations, IGL’s only hope is if the government gives greater priority to it in allocation of gas (currently, it is fourth in the priority list after fertiliser sector, liquefied natural gas and existing power plants). But with election season on, that might take a while. And what if gas demand goes up in the meanwhile? Well, either IGL overdraws more to supply gas to all who need it and pays a bigger fine in the bargain, or a shortage results and the long queues at CNG filling stations make an uncomfortable return. (Businessworld Issue Dated 27 April-04 May 2009)