9th CGD bidding may fetch Rs 70,000 cr investments: Report

The ninth round of the city gas distribution (CGD) licences auction, beginning this week, may see funds worth Rs 70,000 crore from winning bidders, which is four times the cumulative Rs 15,000-18,000 crore invested till fiscal year 2018, said a report.

"The ninth round of auction of city gas distribution licences is set to alter the industry landscape with the government expecting investments of Rs 70,000 crore from winning bidders, or four times more than what was invested so far," Crisil said in a note today.

On offer are 86 geographical areas in 174 districts covering 29 per cent of the population, compared with a cumulative 56 geographical areas awarded in the previous eight rounds in the past 10 years.

The new geographical areas on offer include Chennai, Coimbatore, Visakhapatnam, Aurangabad and Bhopal, which have good demand potential.

"We expect the ninth round to receive way better response than before because of revised bidding norms, and the push from government through favourable policies," Crisil said, and pointed out the new norms like marketing exclusivity period of eight years which is extendable by two more years, compared with give years earlier, tariff floors to discourage unviable bids, removal of additional bid bond requirement and evaluation of bids based on higher infrastructure creation as winnable factors.

Since gas distribution businesses in large cities are more profitable, licences for them are expected to draw greater bidding interest. Bidders are also expected to favour geographical areas adjacent to existing pipeline networks, the report said.

"We expect greater participation as the ninth round auction has put a cap on the performance bank guarantee amount," said the report, adding, "In the earlier rounds, the bank guarantee amount became the winning stroke."