After 'one paisa' bids fiasco, PNGRB changes bid norms for CNG, PNG retail licence

After 'one paisa' bids spoilt the initial auction rounds, oil regulator PNGRB has radically changed the bidding parameters for obtaining a licence to retail CNG and piped cooking gas in cities. The Petroleum and Natural Gas Regulatory Board (PNGRB), in the new regulations released today, said future auctions would be conducted by asking companies to quote the number of CNG stations to be set up and number of domestic cooking gas connections to be given in the first eight years of operation. Companies quoting higher number of CNG outlets and piped natural gas (PNG) connections would get more marks, it said.

The tariff they will charge for transportation of CNG and piped gas or PNG within the city, which previously was the deciding criteria for winning a licence, has been given just 10 per cent weightage.
Number of CNG stations and PNG connections to be released command 70 per cent of the bidding weightage, the PNGRB said in an amendment to the Petroleum and Natural Gas Regulatory Board (authorising entities to lay, build, operate or expand city or local natural gas distribution networks) Regulations, 2008.
Besides, bidders will also have to quote how much pipeline they would lay on winning the licence.

PNGRB has so far held eight rounds of bidding where companies were asked to quote the tariff for pipeline that carries gas within the city limits. This bidding criteria did not include the rate at which an entity would sell CNG to automobiles or piped natural gas to households using the same pipeline network, leading to companies offering one paisa as tariff to win licences.

Entities having experience of at least one year in operation and maintenance of a city gas distribution (CGD) network and having "adequate" number of technically qualified personnel would be eligible for bidding, it said.

Companies having a net worth of no less than Rs 150 crore can bid for cities with population of 50 lakh and more while the same for cities with population of 20 lakh to 50 lakh has been proposed at Rs 100 crore.

The net worth eligibility goes down with population, with a Rs 5 crore net worth firm being eligible to bid for cities that have less than 10 lakh population. PNGRB said any entity security CGD licence would have to enter into a firm natural gas supply agreement with a natural gas producer or marketer in a transparent manner on the principle of 'at an arm's length' within 180 days of winning a license.

The authorised entity has to achieve financial closure within 270 days from date of grant of licence.
The winning company would have 8 years of marketing exclusivity in the given city. Current licences provide for 5 years of exclusivity.

Earlier this year, Oil Minister Dharmendra Pradhan had stated that PNGRB would offer 100 CGD licences for bidding on a new model within months. Last few rounds of CGD have evoked lukewarm response. The fourth round was altogether cancelled, while the fifth saw sparse response.

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The sixth round of bidding for 34 cities in 2015 got bids for only 20. The seventh round of bidding done to set up CGD infrastructure in 11 smart cities under smart city mission received only 1 bid.
Seven cities were offered in the 8th round last year but not all cities have been awarded so far.