Empowering Households: How Urja Ganga Project Could Be The Next Big Thing     

Empowering Households: How Urja Ganga Project Could Be The Next Big Thing     

by Aashish Chandorkar - Feb 5, 2018 07:44 PM +05:30 IST
Empowering Households: How Urja Ganga Project Could Be The Next
Big Thing      Pradhan inaugurating the PNG supply at Nalco Nagar. (@dpradhanbjp )
  • How the CGD market evolves eventually will depend on how quickly the Urja Ganga project adds new cities on its way and the interest local population demonstrates in getting piped natural gas.

On 20 October, Petroleum and Natural Gas Minister Dharmendra Pradhan visited the house of NALCO officer Jatindra Nayak and his wife Binapani Nayak to have a cup of tea. The occasion was allocation of the first piped natural gas connection in their Bhubaneswar locality.

India’s city gas distribution (CGD) infrastructure is nascent. Just a handful of cities in a dozen states have access to either compressed natural gas (CNG) used for commercial operations or piped natural gas (PNG) used for household needs. There are just about 3.2 million domestic connections, 95 per cent of which are in just three states – Gujarat, Mumbai (Maharashtra) and Delhi. As a contrast, almost 44 per cent of China’s gas consumption is for urban areas as per a Bloomberg report. So when Pradhan inaugurated domestic gas connections adding Odisha, a new state to the list, it was a significant step forward.

Prime Minister Narendra Modi had inaugurated the Urja Ganga project in his Lok Sabha constituency of Varanasi in October 2016, announcing a gas pipeline between Odisha and Uttar Pradesh, also benefiting the states of West Bengal, Jharkhand and Bihar. This single project of over 1,500 kilometres would increase the existing Indian gas pipeline infrastructure of 15,000 kms by 10 per cent. This pipeline would have seven station cities benefiting directly from the access to gas – Varanasi, Patna, Ranchi, Jamshedpur, Kolkata, Bhubaneswar and Cuttack.

This project targets increased use of domestic cooking gas (LPG), as well CNG for vehicles and PNG in select cities. With the Ujjwala Yojana running in parallel and extensively covering the eastern states, the pipeline project dovetails perfectly with the increased consumer demand. The Ujjwala Yojana involves providing free LPG connections to weaker sections of the society, encouraging them to move to LPG for household energy requirements.

This expansion of CGD infrastructure backed by laying of inter-state gas pipelines is a good step forward. The pipelines themselves generate new temporary and permanent jobs for construction and operation. Since the pipeline operations and maintenance has a high local touch point, the permanent jobs are located in the cities of operation and require new skill sets. A key distinction for the CGD infrastructure in India is how it is modeled compared to other utilities like power and telecom.

In the power sector, there is no separation of content and carriage. The local distribution company operates the backbone (carriage) and also gets the power to the last mile (content). There may be small differences in a few cities, where private operators have set up distribution businesses, but largely this model is monolithic. The distribution companies are also a natural monopoly for most part. Hence power sector is the closest of all utilities models.

Telecom also involves each operator running its own last mile as well as backbone operations. Players may share some infrastructure like cell towers in some cases, but they own all parts of their operating value chain end to end. There are also private players involved across the country, but the number of players in each circle is regulated. This market is an oligopoly structure with private participation.

The CGD operations are however structured differently. The government owned Gas Authority of India Limited (GAIL) owns almost all of India’s long distance gas pipelines. Other players like Oil and Natural Gas Corporation (Uran-Trombay), Reliance Gas Transportation (Kakinada-Hyderabad-Uran-Ahmedabad), Indian Oil (Dadri-Panipat), and Deepak Fertilizers (Uran-Taloja) have own networks for specific purposes. Additionally, Gujarat State Petronet, Gujarat Gas and Assam Gas operate specific networks for retail operations. The end customer then deals with a retail firm – about 15 of them countrywide – to get the CNG or PNG supply at home or at the commercial premises.

This is hence a unique arrangement where content and carriage are generally separated, though they overlap in a few cases like Gujarat Gas. The content provider is generally a monopoly – only one operator in one area – and so is the carriage. But this operating structure is easy to change, bringing in more last mile players as long as the backbone supply was guaranteed. This structure is also amenable to keeping the government out of retail businesses, focusing only on preventing market failure, by keeping the lights on for the gas pipeline backbone.

How the CGD market evolves eventually will depend on how quickly the Urja Ganga project adds new cities on its way and the interest local population demonstrates in getting PNG. In cities like Mumbai, Delhi and Pune, PNG operations have existed for a long time. Several large building societies have gas banks of their own – a cooking gas on cloud model.

With the learning from these cities, as also from several parts of Gujarat, which has over 15 lakh PNG connections, it should not be too difficult for new retail players in eastern India to expand rapidly.

In the past, there have been issues regarding the pricing of PNG. Natural gas prices are not linked to global prices, unlike petrol and diesel, which have now been deregulated. While the government wants all CGD providers to buy the gas off the network at the same price, the natural monopolies have acted unilaterally to increase the retail prices. Also the value added tax charged by different states on natural gas is different, with petroleum products not yet in the purview of goods and services tax (GST).

Addition of new cities to the CGD network and rapid scaling of the number of households using PNG is one way to attract new private retail investment. As the market depth grows, new entrants may come in, and with competition, services as well as pricing patterns may become more consumer-friendly.

In this regard, the connections given to 255 households in NALCO Nagar, Bhubaneswar well ahead of the planned March 2018 date augurs well for the sector. Pradhan, who has run the Ujjwala Yojana on a mission mode, is also working with the Bihar Chief Minister Nitish Kumar to enable a PNG project in one Bihar district.

The Urja Ganga project as well as other pipeline projects is however still limited by the pet Indian infrastructure peeve – land availability. Given the prohibitive cost of land acquisition, it is almost impossible to create any new infrastructure in large Indian cities. But conversely, this also allows the government to take ideas like CGD to smaller cities in states, which are relatively poor and where land costs are still manageable.

If Pradhan is able to drive the completion of the Urja Ganga project and add a dozen more cities on the CGD network in the next couple of years, he would have delivered another showcase achievement after Ujjwala Yojana for Prime Minister Modi ahead of the next Lok Sabha polls.

Aashish Chandorkar is Counsellor at the Permanent Mission of India to the World Trade Organization in Geneva. He took up this role in September 2021. He writes on public policy in his personal capacity.
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