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Rajeev Sharma, CEO, Adani Gas

19 Jan 2013

Adani Gas, a wholly-owned subsidiary of Adani Enterprise Ltd, was incorporated for setting up distribution network in various cities to supply natural gas to industrial, commercial, domestic and CNG customers. Its Chief Executive Officer Rajeev Sharma, in conversation with Neeraj Dhankher, explains why administering prices of CNG is not a good idea. Excerpts from an interview:

Please provide an update on Adani Gas’ CNG and PNG activities in Gujarat and Haryana

At the moment we are operating in Faridabad in Haryana and Ahmedabad and Vadodara in Gujarat. In terms of gas quantity, we are selling around 1.1 million cubic metres of gas per day in all the three locations. In Ahmedabad, we have 1.8 lakh PNG connections and a few thousand in Vadodara  and Faridabad. In Faridabad, we initially provided PNG connections in rural areas and now we have started PNG connectivity in Faridabad cityas well.

In Ahmedabad & Vadodara we have 60 CNG stations and in Faridabad, we have eight CNG stations. We plan to add about 6 to 8 Stations in Ahmedabad & Vadodara and a4 stations in Faridabadin 2013-14n.

Currently, price of CNG is higher than that of diesel in Gujarat and coupled with the  high cost of converting buses from diesel to CNG, the CNG program in the state is facing challenges.  But I am sure the value of environment preservation will be given priority in times to come and CNG will remain an important area of activity for us and all CGD companies.

Given the acute shortage of gas at present, do you think that there is a need for the government to accord higher priority to the CGD sector in gas allocation?

It will not be correct to say that there is shortage of gas. Rather, it ischeaper domestic gas which is in short supply. But RLNG is available but there is a price factor attached to it.

As regards to providing higher priority to CGD sector in gas allocation, I feel that the sector has already been given high priority. The government has also to keep in mind requirements of fertilizer and power sector and other subsidies. Until we extinguishthe subsidies, these things will continue. We expect that over a period of time, the price of domestic gas will also be revised and brought at par with the long term R-LNG prices..

How much of RLNG is being used by Adani Gas to fuel its CGD projects in Gujarat and Haryana? Please provide details on the different categories of gas being used by the company along with their price.

In Ahmedabad we do not receive any domestic gas, it is 100% on RLNG. This is one of the reasons as to why CNG price is higher in Ahmedabad and Vadodara

In Faridabad, we receive around 250,000 SCMD of domestic gas for use of CNG and domestic. RLNG is beingsupplied to industrial and commercial consumers.

Adani Gas recently received authorization for supplying gas in the city of Khurja in Uttar Pradesh. What are your plans?

We got authorization only a few days back. We have already laid a network in Khurja and are awaiting pipeline connectivity from GAIL. Here also only RLNG will be supplied for which we have already signed agreement with GAIL. Large part of our network is ready and connectivity should come through by end of this financial year. Once connectivity is provided, we will be able to supply gas to houses and industrial units within 24 hours. We are already approaching industries for tie up. We are in talks with existing petrol pumps for exploring scope for adding on CNG facilities. While Khurja industries today are dying for fuel, still, I think that there will be some resistance in initially due to higher pricing. I feel there should be a policy which ensures that price to all CGD company is brought to same level. Only then can you call it a level playing field. In today’s scenario, few CGD companies are getting APM gas not because of design but because they existed earlier when APM was available.

What is the current situation in cities like Noida, Udaipur and Jaipur where you have received NOC for laying CGD network?

We have laid networks in Noida, Jaipur, Udaipur and Lucknow. But there has been no progress due to regulatory issues. In Lucknow, we were not provided connectivity and Green Gas has been authorized to supply gas. But we are in talks with Green Gas to work jointly in Lucknow. In Noida, even though wehave laid network, IGL has been selling gas in the city. I am sure that we will find similar solution as we do in Lucknow. In Jaipur and Udaipur, the PNGRB has rejected our application under Section-18 (1) of the PNGRB Act. But when we had applied, Section-16 was not notified. Now Section-16 has been notified and we have represented to the Board to include authorization under the section and our application is still pending.

What are the reasons behind decision to pick up stake in Green Gas? Why has it been delayed and by when the deal is expected to be finalised? Are there issues over asset valuation?

We are in discussions with Green Gas and its promoters for merging our assets in Green Gas and picking up some equity stake in the company. We have jointly appointed SBI Caps as consultant for evaluation and I am sure some solution will come soon. Valuation exercise inherently evokes divergent views but SBI Caps as an independent consultant shall be able to resolve it. Once the deal is worked out, we will jointly work with Green gas in Lucknow and Agra. After this exercise, if we find it successful, we will look for similar arrangement at Noida with IGL and GAIL. In case this deal does not go through in Lucknow, we will pursue PNGRB to take a decision.

What steps are being envisaged to increase Adani Gas’ market share in the City Gas Distribution segment, especially after the recent takeover of a majority stake in Gujarat Gas by GSPC?

There are two ways to look at it- organic and inorganic. Acquisition and mergers is one way to grow big, other way is the normal way- you keep bidding and keep expanding. Adani Gas, in a short span, is the only CGD Company which is working in four different states in eight different cities. That way we are number one.

With regard to GSPC’s acquisition of Gujarat Gas, they must have found it a good deal and so have taken it. We didn’t think it was a good deal and felt that Gujarat’s market is saturated and therefore we didn’t find any big upside in it.

Which regions are you targeting for participation in future PNGRB bidding rounds?

We will surely bid in areas where we feel there is potential. We don’t want to just bid just for the sake of it. We want to make sure that it should make good business proposition. A geographical area does not really matter and hence we have no specific preference.

The Supreme Court has ruled that PNGRB does not possess powers to fix or regulate the maximum retail price at which gas is to be sold by entities nor can it fix Network Tariff and Compression Charge for any entity. What are your views on the whole issue?

It is very unfortunate. The Act was enacted in 2007, and the rules came later. Till then no one objected. When it starts affecting, only then one starts challenging. Nowhere in the world have I seen that a regulator does not have powers to regulate.

As regards to IGL’s stance, the spirit of the Act says that regulator should have powers to regulate tariffs. When you actually read the Act, the Board is only regulating network tariff or compression charge, not marketing margin. So in a nutshell, they are not regulating MRP.

Do you feel that the current system of inviting bids for setting up CGD network in different Geographical Areas by PNGRB is justified? Few months back, the regulator had cancelled the bids received in earlier CGD bidding rounds. What are your suggestions to make the bidding mechanism smoother and efficient?
We have no problems with the bidding route for selecting the CGD entity for a geographical area. Infact that is the only way it can be done. But we had certain reservations regarding the bidding parameters from day one. We have made some suggestions regarding this to the Board and I am sure they would be considered by the Board while reviewing the bidding parameters.
Please outline the roadmap for Adani Gas for the next five years? Is CGD expected to be the core business or there are plans to venture into other areas?
We are purely in CGD business. As and when new cities will come, we will definitely be bidding. And as regards to Adani Group is concerned, we are setting up an LNG Terminal in Mundra in association with GSPC and we have plans to acquire some oil and gas assets overseas.
What are the biggest challenges that you are currently facing in your operations?

It is a comparison of unequal. While CNG is being sold at market price, we are supposed to compete with diesel, which is heavily subsidised and its price is artificially kept low. How can you compare these two? No effort is being  made to ensure that this parity comes. Moreover, diesel is more polluting than say even petrol. If one is seriously concerned about city environment, then the domestic gas given to steel and other industrial units  can be given to CGD entities for CNG so that the prices can be lower. Even the current domestic gas price is set to increase. Therefore, everything should be market driven. If any subsidy has to be given, the same should be provided directly in bank accounts.

Today, taxation varies drastically across states, which also pose a stiff challenge in operations.

I also do not understand the concept of gas allocation. Why there should be an allocation? There should be a single price for gas and people should be allowed to purchase it. Even if D-6 field would have produced at optimum level, I don’t think it would have been enough to meet gas demand in the long term. As a country, we have missed the game in LNG. We knew that gas would remain short. We should have been thinking in investing in upstream assets outside India to secure our supplies at a reasonable price.

There have also been reports over delay in laying pipelines in absence of permissions from Municipal bodies. Your comments.
Piped Natural Gas is a new concept in India and is known only for last 20 years. Local bodies did not foresee see it. Most Municipal Corporations are cash starved and they find ways and means to augment revenue from whichever source they can. Unfortunately, they are looking at revenue from laying of pipelines in cities, which to my mind, is a utility. If you charge anything for laying pipeline, any company doing it will have to pass it on to the customer, which will make City Gas more and more non lucrative.

(InfralineEnergy thanks Rajeev Sharma, CEO, Adani Gas for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)