Sector Update | 26 November 2020
Oil & Gas
Oil & Gas
Open access: The wait ends, but clarity awaited
Petroleum and Natural Gas
Regulatory Board Notification
Our earlier report:
PNGRB takes another step toward
common carrier regulation
Subsequent to earlier drafts and open houses for access code for CGDs, the regulatory
board (PNGRB) has finally published its regulations. Key excerpts are listed in the
subsequent paragraph below.
As per our discussions with various industry experts, around 40-45 GAs, where the
marketing exclusivity has ended, have been identified pan India. However, the
proposed open access will be implemented in a phased manner, with the first batch
targeting only 6-8 GAs for pilot implementation.
Marketing exclusivity has already expired in Delhi-Noida-Ghaziabad for IGL, Mumbai-
Thane urban-Raigad for MAHGL, and for 12 of 18 GAs of GUJGA.
The pilot would be conducted under the preview of the new PNGRB chairman as the
tenure of the current chairman is about to end in Dec’20.
We believe that the process of implementation of the final draft regulation would be
slow, although competition would commence eventually.
Also, one crucial directive to highlight is that in the interest of creation of additional
infrastructure, existing CNG or LCNG stations (run by dealers and franchises of
authorized entities) on the date of notification of a GA as an open carrier would not be
considered as a third-party shipper. Even so, the question remains on what happens
when these contracts would lapse (as these outlets are contracted for a finite period
of time, which requires renewal).
We do not change any of our current recommendations and reiterate GUJGA as our
top pick given its huge potential in terms of recouping the probable loss in volumes.
Nonetheless, in the 9th/10th rounds of CGD bidding, IGL/GUJGA won four/seven GAs,
while MAHGL bagged none.
Excerpts for the open access for CGDs
Capacity declaration
has been set as a minimum 20% of: (whichever is higher)
the CGD network and compression capacity; or
the maximum quantity of gas that has flowed into the CGD network or
through compressors even for a period of one day in the past.
If the above stated open access capacity in a CGD network falls below 10%, the
incumbent would have to increase capacity of the CGD network within six
months from the date it has fallen below 10%.
Capacity allocation –
The incumbent is required to publish information on
various entry and exit points within 21 days from the declaration of a GA as
open carrier. However, the regulatory board is yet to declare GAs where
marketing exclusivity has expired.
If total booking requests from all third-party shippers is less than 20% as
mandated by PNGRB, then every shipper should be allocated with their
requested capacity. If total booking requests are more than 20%, the allocation
would be based on the highness of the product of the sum of the entry points
MDQ and the period of capacity booking.
Charges:
The shipper would pay the incumbent transportation rate for CGD and
CNG along with other charges (like overrun charges, system imbalance charges,
off-spec gas charges, applicable taxes and duties, etc.).
Transportation tariff would be determined by the incumbent. Only if there is any
dispute, PNGRB would look into the tariff determination.
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com)
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
26 November 2020
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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