City Gas Distribution

Submitted by
Namman Rajvanshi (73)

Introduction
CGD has emerged as an area of rapid growth in
the oil and gas industry.
The multiple use of natural gas in the domestic
sector and transportation are being recognized
by the country at large.
Coupled with larger availability of natural gas
and the presence of several players willing to
invest in CGD, the segment is poised to see
explosive growth.
CGD is commonly described as the final
component of the natural gas value chain.
CGD is that segment of the chain which makes
natural gas available to customers for use as
transport and cooking fuel besides commercial
and industrial uses

While large consumers of natural gas such as the
power and fertilizer industry receive natural gas
directly through the high pressure interstate
transmission pipelines, CGD is provided through
a network of medium to low pressure
distribution pipelines by a local distribution
company

Historical background
CGD in India began as early as 1880 when the
calcutta gas company limited began to undertake
gas retail business. It depended on coal gas and
still operating though incurring loses.
Since 1970 onwards CGD operations were
undertaken by various players but these were
limited to Delhi, mumbai, and several cities and
towns in Gujarat.

Game changer
The big boost for CGD growth came in 1998
when the supreme court issued orders to convert
all public transport vehicles plying in Delhi to
CNG in response to a public interest litigation
filed seeking a solution to the rising air pollution
in Delhi.

Role of PNGRB
Since PNGBR came in existence in 2007, it had
given a priority to CGD.
It notified CGD and pipeline regulations in
2008.
It commenced bidding process in 2009.

Weight age given to different factors
in CGD bids
Factor considered Weight age
Least present value (PV) of overall unit network
tariff over economic life of project
40%
Least PV of compression charge of CGD over
economic life of project
10%
Highest PV of inch kilometer of steel pipeline
during exclusivity period
20%
Highest PV of PNG domestic connections during
exclusivity period
30%
IGL vs. PNGRB
IGL had been implementing CGD in Ghaziabad
before the PNGRB came in to being.
After its inception the PNGRB rejected IGL
contention that it was authorized by the supreme
court and government to undertake CGD
operations in Ghaziabad and it had invited bids
from entities for undertaking operations in
Ghaziabad.


Indraprastha Gas Ltd (IGL) and a non profit
organization voice of India has challenged the
PNGRB notification for bid in Ghaziabad in
Delhi High court stating section 16 has not so far
notified by the Government, so PNGRB has no
authorization to issue licenses for city gas
distribution network.
High Court
In pursuance of the challenge by Indraprastha Gas
Ltd (IGL) the Delhi high court ruled on January 10,
2010 that the petroleum and natural gas regulatory
board did not has power to issue city gas licenses
The High court ruled since the government had not
notified section 16 of the PNGRB act, the
downstream regulator did not have powers to grant
authorization for beginning city gas distribution
The board was constituted in 2007 without section
16 of the act being notified.

The High Court judgment says In view of non
notification it is held that the board has no power
to grant authorization to entities which applied to
it for laying, building, operating or expanding city
or local natural gas distribution networks.this is
in consonance with the central governments
stand in the counter affidavit filed before the
court
The Delhi high court has held Any authorization
given by the board cannot be termed as a valid
authorization as section 16 of the PNGRB act has
not yet been notified by the government


Supreme court
Against the order of the Delhi high court,
PNGRB preferred an special leave petition in the
supreme court of India
The supreme court stated the PNGRB board can
only process pending applications, but it cannot
process any final orders.
In July 2010 the Union government notified
section 16 of the PNGRB act 2006, to allow the
board to process CGD applications.


In may 2011 the supreme court empowered the
PNGRB to issue CGD licenses.