Bidders project 'irrational' tariffs

The petroleum and natural gas regulatory board (PNGRB) had, last week, looked into reports for the Jalandhar city gas distribution project, for which 12 bidders had submitted bids. These include Siti Energy, Lanco Infratech, Indraprastha Gas (IGL), Jay Madhok Energy, IndianOil-Adani Gas, Gail Gas, Hindustan Construction Company (HCC), Ambience limited, LMJ Energy Infralogistics, Hindustan Petroleum Corporation and Bharat Petroleum Corporation Limited (BPCL).

However, some players are alleging that to brighten their prospects in the bidding process, companies other than HCC have indicated low figures for network tariff and compression charges.

The bidding process comprises four elements: network tariff, inch kilo metres of steel pipelines, the number of domestic connections in the first five years and the compression charges from the sixth year to the 25th. According to the bidding parameters, the bidders would get a maximum score of 40 for network tariff, 10 for compression charge, 30 for numbers of domestic connection and 20 for inch kilometer of steel pipelines.

“Many of these players have projected irrationally low network tariff of only 30 paise for transporting 1,000 standard cubic metre of gas as part of their game plans to score more. In contrast, current city gas distribution operators such as Mahanagar Gas, Mumbai and Indraprastha Gas, Delhi are learnt to have projected network tariff of about Rs 3,500 per 1000 cubic meter of gas,” said one of the players on the condition of anonymity.

This implies none of the bidders would be able to recover the capital cost of the project by projecting such network tariff and may resort to cross subsidisation by raising the retail selling prices of gas. Irrational bidding, including cross subsidization, is forbidden under the PNGRB Act passed by Parliament in 2006.

When contacted, Gail Gas admitted some of the bids submitted were absurd but declined to comment on its own bid. “It is up to the regulator to decide and verify the bid details. Players are free to bid the way they wish to,” said a senior Gail Gas official.

The bidders have allegedly indicated low figures for the majority of the project life of 25 years, while for the last year of the project, the compression charge has been raised. The compression charge indicated by BPCL from the first to the 24th year was Rs 0.01-1.29 per kilogram, while for the 25th year, it was Rs 1,026 per kilogram. “This is unacceptable by any industry standards,” said an industry player.

The players also say barring a few bidders, others have projected excessive steel pipe lines for a small city like Jalandhar. “Their projections are much more than what Mahanagar Gas has done in Mumbai in 16 years. One of the bidders has projected about 2,500 km of steel pipelines in the initial four years. This is totally flawed, as the bidders would fail to complete the targets or would use economic resources not consistent with the PNGRB Act. Most of these projections would be commercially unviable,” said a source.

Industry players expect PNGRB would delay the bidding by rejecting the bids. “City gas distribution (CGD) projects, which are expected to benefit millions of common people across the country, cannot be manipulated by such bidders. A lax approach from PNGRB in the bidding process would be detrimental to the Union government’s plan to expand CGD networks in various parts of the country,” said an industry source.

When contacted, a PNGRB senior official said this was a competitive bidding process and the board's job was to ensure transparency and not to interfere in the bidders’ commercial strategies. “If the bidders have submitted irrational bids, they are taking a huge risk. It is a level playing field and we cannot be biased against anyone. As long as the bid criterion is adhered to, we are not qualified to sit in commercial judgement over someone's bidding,” the official said.