RIL arm set to supply gas to 52 cities

RIL arm set to supply gas to 52 cities

RIL, which is set to become the single-largest gas producer in the country once its Krishna-Godavari gas hits full production, may also become the largest gas distributor soon with operations in 52 major cities. Reliance Gas Corporation (RGCL), a subsidiary of RIL, has emerged as the sole entity to submit expression of interest (EoI) for these cities.

The company would have an exclusivity over gas distribution in these cities for five years as per the gas distribution policy. RIL’s city-gas business is backed by its claim that the price of the piped gas it would supply would be cheaper by one-third (33%) the price of conventional cooking gas (liquefied petroleum gas) supplied in cylinders.

Responding to queries at the India Economic Summit 2006, RIL chairman & managing director Mukesh Ambani said: “Our gas would cost one-third less than that of LPG.” Consumers today enjoy a subsidy of more than Rs 300 per cylinder of cooking gas. Gail India, which has been the leading city gas distribution company, with operations in Mumbai and New Delhi, has taken a back seat with regard to EoIs for major cities. Gail is at a disadvantage vis-a-vis RIL as it has to depend on a third party for gas supplies.

RIL, on the other hand is vertically integrated and will source its gas from its own fields. RIL has said in its application that RGCL will source gas from its parent company RIL which has 35 exploration blocks.

Interestingly, RIL has successfully leveraged its tie-up with its competitor Gail for transportation of gas. “RIL has proposed to use Gail’s HBJ and DUPL pipelines for many cities where it plans to set up its city-gas business. But, Gail could not leverage the arrangement between the two parties for its projects,” a company official said.

On March 15, 2007, RIL signed an MoU with Gail for co-operation in the gas sector. Identified areas of joint co-operation has been natural gas pipeline transmission and marketing, CBM gas opportunities, city and local gas distribution, operations and maintenance (O&M) services, exploration, production and technology and knowledge sharing. Officials in Gail confirmed that they chose only seven cities in the first phase. Surprisingly, the petroleum ministry is understood to have permitted Gail to bid only for seven tier-II cities including Kota, Jhansi, Mathura, Sonipat and Dewas (where it is the single interested entity).

“While in theory, navratna companies are free to take business decisions, in practice they have to get formal or informal approval of the administrative ministry before making any major move,” CEO of a navratna company on condition of anonymity said. So far, the downstream regulator has received EoIs for 59 cities, with interests of RIL and Gail overlapping in only two cases — Ghaziabad and Gwalior. The list of 52 cities where RIL is the sole interested party includes Noida, Faridabad, Gurgaon, Navi Mumbai, Bangalore, Hyderabad, Pune, Chandigarh, Lucknow, Chennai, Amritsar, Ludhiana, Surat, Nasik, Agra, Jaipur and Coimbatore.

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Source:ET