The valuation of Gujarat Gas, the BG Group company on the block, depends on the outcome of the Petroleum and Natural Gas Regulatory Board’s decision on granting exclusivity rights for city gas distribution in its operating areas.
PNGRB recently awarded authorisation to the BSE-listed company for city gas distribution under the regulations that require existing players to seek its permission for their business. As a next stage, the board is examining marketing exclusivity permission.
A Board official said, “We are evaluating whether exclusivity should be granted. The rationale is based on how developed the market is but the area where Gujarat Gas operates is matured.”
The company has been in the business of gas distribution for nearly 25 years. It supplies to 340,000 domestic, commercial and industrial consumers and serves 168,000 compressed natural gas users through a pipeline network of nearly 4,000 km.
Going by the PNGRB (Exclusivity for City or Local Natural Gas Distribution Network) Regulations, 2008, Gujarat Gas could expect marketing exclusivity for three years, a BG Group spokesperson said. The authorisation application, he said, was expected shortly, being in the final stages of processing by PNGRB.
The formal and final bids for BG Group's stake in Gujarat Gas closed on March 15. “As the process is still underway, it is not appropriate for us to comment further at present,” he said. BG is in the process of divesting its 65.12 per cent controlling stake.
PNGRB regulations provide for marketing exclusivity of three years for companies present in a city prior to the regulations and of five years for new ones. Companies in the city gas business are also entitled to a network exclusivity of 25 years, extendable by another 10 years if the operator meets all the terms and conditions. Marketing and network exclusivity kicks in from the date of authorisation.
Once the exclusivity decision is taken, the company would be required to apply for rate approval. Last week, a PNGRB order to Indraprastha Gas (IGL), the monopoly operator in Delhi, had ordered it to refund around Rs 1,000 crore to consumers with restrospective effect, besides reducing rates.
A senior industry executive said the regulator had gone strictly by the guidelines in the case of IGL, but future orders in the case of other companies might not be as harsh.