IGL eyes stake in Central UP Gas to expand beyond Delhi

Delhi’s monopoly compressed natural gas company Indraprastha Gas is eyeing a majority stake in Central UP Gas Ltd (CUGL), which operates city gas businesses in Bareilly and Kanpur.

This would be the first such investment by IGL which has not been able to expand beyond Delhi and the National Capital Region.

GAIL and Bharat Petroleum Corp have stakes of 25 per cent each in CUGL, while institutional investors Asian Development Bank, IL&FS and Infrastructure Development Finance Company hold 20 per cent, 15 per cent and 15 per cent stake, respectively. However, the institutional investors plan to exit the company, said a person privy to the development. If Indraprastha Gas does not acquire their stakes, CUGL may come up with an initial public offering in the near future to provide an exit opportunity to these investors.

When contacted, a senior Indraprastha Gas executive said the proposal was “under examination”, and so far, no decision had been taken. “We are yet to do due diligence, but we are looking at the option,” he said. As on March 31, Indraprastha Gas had cash reserves of Rs 130 crore. In 2011-12, it had recorded a profit of Rs 306 crore.

Formed in 2006, CUGL, all the operations of which are in Uttar Pradesh, had recorded a turnover of Rs 65 crore in 2010-11, while its net profit stood at Rs 12.3 crore. The company caters to customers in Kanpur and Bareilly across the transport, domestic, commercial and industrial segments.

According to the CUGL website, about 15,000 vehicles run on compressed natural gas in Kanpur and Bareilly. The company also supplies piped natural gas to 600 households and caters to 10 commercial establishments and 12 industries. CUGL is authorised to carry out city gas business in Unnao district, and is awaiting approval for carrying out such operations in Jhansi as well. It has an administered price mechanism allocation of 100,000 standard cubic metres per day.

Indraprastha Gas, which currently operates primarily in Delhi, has plans to expand in neighbouring Noida and Ghaziabad, which it has been authorised to. In early 2011, IGL had also bid for city gas business in Ludhiana and Jalandhar in the third round of city gas bidding invited by the Petroleum and Natural Gas Regulatory Board. However, no progress has been recorded so far, owing to irrational and impractical bids by a few participants.

CUGL may well provide Indraprastha Gas an opportunity to scale up its city gas business.