The Petroleum and Natural Gas Regulatory Board (PNGRB) may cancel the
third round of auctioning of city gas distribution rights due to the
irrational bids it received. Last year, the board had scrapped the
fourth round soon after the announcement citing a similar reason.
The third round of bidding, held in July 2010, had attracted 51 bids from 26 companies, including the Indian Oil Corporation (IOC), Adani Energy, Gujarat State Petroleum Corp, Engineers India and GAIL Gas.
“Last year, IOC, GAIL and IGL had alleged that some companies had deliberately suppressed key input costs to keep their overall capital costs competitive. PNGRB is acting on it,” said a company executive of one of the bidders on condition of anonymity.
The areas included in the third round are Asansol-Durgapur, Gujrat's Bhavnagar and Jamnagar districts, Kutch (east and west), Ludhiana and Jalandhar (Punjab).
Ludhiana had received the largest number of bids at 16, followed by Jalandhar at 12. While Kutch (east) had received eight bids, Asansol-Durgapur received seven. Kutch (west) and Jamnagar district had received four and two bids, respectively.
The fourth round of bidding was initiated in October 2010 in which eight cities had been offered. However, the regulator cancelled this round last November on allegations of irregularities. A senior PNGRB official said, "The board is looking at all options and will take a view on it soon. We are contemplating on what to do with it as it is not giving us the kind of result which appears realistic.”
In an attempt to score more in the bidding process, bidders had indicated low figures towards network rates and compression charge. There are four bidding elements — network rate, inch kilometres of steel pipelines, number of domestic connections in the first five years and compression charges from six to 25 years. According to the parameters, the maximum score for network rate is 40, 10 for compression charge, 30 for numbers of domestic connection and 20 for inch kilometre of steel pipelines.
“The tariff projected by some of the bidders in the third round is too negligible; one paisa per million British thermal unit to recover the cost of laying the network. This is a violation of the PNGRB Act, 2006,” a bidder told Business Standard.
Also, bidders are said to have distorted the compression charge upward in some years of the project life. For this, there may not be any takers according the current market realities.
N Ravichandran, senior vice-president of ICRA Ltd said, “If the third round is scrapped, it will be good for the industry as several companies had, due to the competition, submitted aggressive bids. This would not be sustainable for the companies once they start the projects and would end up making losses. Also, in the long run, the customers would suffer.”
He said PNGRB, in consultation with the industry, will be coming up with new bidding parameters for next city gas distribution rounds.
Under the new bidding parameters, the board, say sources, would prepare its own detailed feasibility report for the town on offer. Earlier, each company participating in the bidding prepared its own report.
The third round of bidding, held in July 2010, had attracted 51 bids from 26 companies, including the Indian Oil Corporation (IOC), Adani Energy, Gujarat State Petroleum Corp, Engineers India and GAIL Gas.
“Last year, IOC, GAIL and IGL had alleged that some companies had deliberately suppressed key input costs to keep their overall capital costs competitive. PNGRB is acting on it,” said a company executive of one of the bidders on condition of anonymity.
The areas included in the third round are Asansol-Durgapur, Gujrat's Bhavnagar and Jamnagar districts, Kutch (east and west), Ludhiana and Jalandhar (Punjab).
Ludhiana had received the largest number of bids at 16, followed by Jalandhar at 12. While Kutch (east) had received eight bids, Asansol-Durgapur received seven. Kutch (west) and Jamnagar district had received four and two bids, respectively.
The fourth round of bidding was initiated in October 2010 in which eight cities had been offered. However, the regulator cancelled this round last November on allegations of irregularities. A senior PNGRB official said, "The board is looking at all options and will take a view on it soon. We are contemplating on what to do with it as it is not giving us the kind of result which appears realistic.”
In an attempt to score more in the bidding process, bidders had indicated low figures towards network rates and compression charge. There are four bidding elements — network rate, inch kilometres of steel pipelines, number of domestic connections in the first five years and compression charges from six to 25 years. According to the parameters, the maximum score for network rate is 40, 10 for compression charge, 30 for numbers of domestic connection and 20 for inch kilometre of steel pipelines.
“The tariff projected by some of the bidders in the third round is too negligible; one paisa per million British thermal unit to recover the cost of laying the network. This is a violation of the PNGRB Act, 2006,” a bidder told Business Standard.
Also, bidders are said to have distorted the compression charge upward in some years of the project life. For this, there may not be any takers according the current market realities.
N Ravichandran, senior vice-president of ICRA Ltd said, “If the third round is scrapped, it will be good for the industry as several companies had, due to the competition, submitted aggressive bids. This would not be sustainable for the companies once they start the projects and would end up making losses. Also, in the long run, the customers would suffer.”
He said PNGRB, in consultation with the industry, will be coming up with new bidding parameters for next city gas distribution rounds.
Under the new bidding parameters, the board, say sources, would prepare its own detailed feasibility report for the town on offer. Earlier, each company participating in the bidding prepared its own report.
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