Reliance's city gas foray

RIL's (Reliance Industries) investment proposal into city gas distribution makes eminent sense and needs to be welcomed. Not only would this improve the reliability of supplies to all consumers within the beneficiary cities, it would also reduce dependence on LPG imports. India imported about 2.33 million tonnes of LPG in 2004-05. It is expected that our imports of oil would increase from a little less than 100 mt to close to 350 mt by the year 2030 and its oil import dependency would rise from 75% today to 95% - giving rise to a growing sense of vulnerability. A large part of this demand growth would be attributable to the demand for transportation fuels and for the residential fuels of LPG and kerosene. As has been brought out by the census of 2001, 90% of rural India still meets its cooking needs through biomass fuels and over 30% of urban cooking requirements, too. The government has stated its intent to ensure access to clean cooking energy to all households by 2012. While city gas would not provide a direct alternative to biomass-using households, it would definitely free up LPG consumption for a wider population base.

As for RIL, it plans to set up a trunk pipeline to connect to the HBJ pipeline so as to evacuate the substantial gas resources they own in the KG basin. Presumably, all the cities identified fall along this route and their Rs 5,000 crore investment is the incremental amount needed for branching out. RIL also proposes to compete with the subsidised LPG (Rs 300/cylinder) which could give it a relatively attractive price of about $11-14 per mmbtu (quick estimates). At the same time, various committees are talking about reducing/ removing subsidies on LPG and, at the minimum, better targeting of these subsidies. As we make progress towards this, the city gas option would become increasingly attractive. More, once the city distribution network is in place, it makes eminent sense to retail CNG for transportation, thereby competing with diesel and petrol. The high taxes on these products would give CNG a huge pricing edge, which could yield large returns for RIL. Given the government?s obvious reluctance to invest in upgrading refineries to produce cleaner diesel - thereby benefiting a much larger population-this step would yield considerable environmental and health benefits, too, to the dwellers in these cities.

As such, RIL's foray into city gas distribution could be a win-win situation for all concerned, one way or the other. Key issues on which clarity would be required relate to pricing of the gas, tax structures and universal service obligations, if any.