Niti Aayog halts Oil India’s CGD plans

The Niti Aayog has denied ‘permission’ to state-run Oil India (OIL) to venture into the country’s reinvigorated city gas distribution (CGD) business, arguing that exploration companies must focus on their core activities given the country’s stagnant oil production. An OIL-HPCL consortium had won bids for two geographical areas (GAs) — Ambala and Kurukshetra in Haryana, and Kolhapur in Maharashtra — during the eighth round of CGD bidding in 2017.

Under the guidelines issued by department of public enterprises in 2016, a PSU looking to create a JV with other companies needs to obtain approval from the Niti Aayog.

The move by the think-tank is at odds with the government’s policy of encouraging integrated oil and gas businesses in the public sector via mergers of PSUs to create world-class entities. Last year, ONGC, the country’s largest explorer, acquired 51% in downstream company HPCL under a government directive.

Also, oil marketing companies like IOC and BPCL have interests in domestic and overseas exploration blocks and crude and product pipelines.

The hurdle put by the public-sector think-tank would mean means that residents of the two GAs would have to wait longer to get piped gas connections in their houses and run their cars on compressed natural gas (CNG).

OIL had also won CGD rights for two other GAs (Cachar, Hailakandi and Karimganj; Kamrup and Kamrup Metropolitan) in Assam in consortium with Assam Gas Company and GAIL (India) in the recently concluded ninth round of CGD. According to an OIL executive, the firm is apprehensive that these JVs may also hit the Niti Aayog wall.

An official from the ministry of petroleum and natural gas said: “These (upstream) companies want to expand in the downstream sector and share risk as the returns in the CGD business comes over a period of time.”

The OIL official said certain queries were raised by Niti Aayog and though OIL replied to them, the JV application hasn’t yet been cleared. “We will take up the issue with the petroleum ministry,” added the official.

An HPCL executive said the queries raised by the think-tank are not directed at HPCL. Apart from winning one GA in the ninth round of CGD, HPCL already has three gas distribution JVs—Aavantika Gas and Bhagyanagar Gas with GAIL, and Godavari Gas with Andhra Pradesh Gas Development Corp which again is a JV between GAIL and the state government. The HPCL executive, however, expressed optimism that the issue would likely be sorted and said the combined entity was going ahead with the plan.

Firms winning CGD licences for a particular GA are allowed to sell CNG and piped cooking gas in that area. In the latest ninth round, the Petroleum and Natural Gas Regulatory Board (PNGRB) offered 86 GAs covering 174 districts in 22 states and union territories i.e. 24% of India’s area and 29% of population. The government aims to connect 1 crore households with piped gas by 2020, which is in line with increasing the share of natural gas in the primary energy basket of the country to 15% from 6% over the next few years. The existing CGD operators include Indraprastha Gas and GAIL Gas which serve a population of 24 crore through 42 lakh domestic connections and 31 lakh CNG vehicles.