City Gas Distribution Is the Opportunity Real?

Conference on City Gas Distribution

27th July, 2011

STRICTLY CONFIDENTIAL
This document is strictly private and confidential and is intended only for the use and information of the organization and select client
employees to whom it is addressed. This document contains information confidential and proprietary to A.T. Kearney. Copy or distribution
without permission is prohibited.

A.T. Kearney /CGD Conference/ July 2011 1

Potential for the CGD sector in India is immense could be a ~USD 10 bn1
industry by 2020
Gas demand from CGD Sector
(mmscmd)

Geographic
Footprint
55 - 60

~15 X

20 - 25

Existing/ Bid/
Authorized
Proposed

2010

2015

2020

Expected Revenue1 (2020) : 8-10 Bn USD

~250 cities expected by 2020

Expected EBITDA margins (2020) : 23-25%

While opportunity exists, we are not currently well positioned to achieve it

(1) Revenue at current market prices

A.T. Kearney /CGD Conference/ July 2011 2

Several players are assessing an entry to cash in on the growth opportunities

Large Incumbents

Recent / Prospective Entrants

Integrated Gas
Utilities

Oil Marketing
Companies

Local Players

Power
Companies

MNCs

???

Each group brings distinctly different set of capability and background to the sector
Replicating the model of incumbent players to achieve similar success is not an option

There will be winners and losers only a few entrants are expected to be successful
A.T. Kearney /CGD Conference/ July 2011 3

Hidden pitfalls

Obvious Challenges

Nascent CGD sector presents multiple challenges not all are recognized

Regulatory
Challenges

Gas Availability

Infrastructure

Organizational
capability

Business model

Planning &
market
penetration

Project
management
Gas portfolio &
pricing

How the hidden pitfalls are tackled will differentiate the winners from the rest
A.T. Kearney /CGD Conference/ July 2011 4

Players need to get their act right the very first time Five key questions
need to be addressed

1
2
3
4
5

Do you have a robust business model for

successful long term participation in the market?
Have you planned to make the most of demand in
target geographies?
How will you build the optimal gas portfolio to serve
each segment profitably?

Will your project execution capabilities support

your growth plans?
How will you set up the organization and attract &
retain the right talent?
A.T. Kearney /CGD Conference/ July 2011 5

Do you have a robust business model for

successful long term participation in the market?

Key business model decisions

Mode of participation
Strategic Investor, Gas marketer,
Operator etc.
Geographic Footprint
Single city vs. Regional vs. Pan
India
Operating Model
Inhouse vs. Outsourced

City Level Entry Model

Standalone vs. Single JV vs. City
Specific JV

..should be aligned to competencies

Increasing Specificity to CGD

Access to Capital

Access to Gas

General Project
Management

Gas Network
Design & Roll-out

CRM Billing,
Complaint handling
etc.

Oil Retailing / LPG

distribution

Utility Experience
(Electricity / Water)

Gas Network O&M

A.T. Kearney /CGD Conference/ July 2011 6

Have you planned to make the most of demand in

target geographies?

Set targets
based on
Total
Addressable
Demand

Develop
strategies to
exploit
market
potential

Focused conversions
e.g., Private Vehicles
Commercial Vehicles
Households
Industries

New Applications
e.g., Cogen
Commercial
Establishments

Easy Targets

Opportunistic

Value
Proposition

Customized for
each segment

Service
Offering

Develop service
focus earn
customer loyalty

Stretch Demand

Market
Coverage

Branding &
Marketing

Total Demand

Do not leave
value on table

Break away from

monopolistic
mindset

A.T. Kearney /CGD Conference/ July 2011 7

How will you build the optimal gas portfolio to serve

each segment profitably?

Gas Portfolio

APM

NELP
(RIL KG D6)

Private/JV

Contracted
LNG

Spot LNG

Weighted
average
Basket
Price

Enablers

Accurate Forecasting
Opportunity loss vs. expensive
gas

Gas storage and Handling

Segment specific pricing

and profitability
Competing
Fuel

Segment

Transport

Diesel

Domestic

LPG

Parity Price

Maintain internal buffer to

handle unplanned variations

Access to diversified
sources
Ensure business continuity in
case of supply / price
disruptions

Commercial FO /
LSHS
/ Industrial

Weighted Average
Price Realization

A.T. Kearney /CGD Conference/ July 2011 8

Will your project execution capabilities support

your growth plans?

A.T. Kearney House of

Capital Project SM
Strategy
Impacting
Capex

CFO
Effective planning and
capital allocation

Construction &
Commissioning

Procurement

Design &
Engineering

Project
Execution
strategy

Capital Allocation

Operations & Maintenance

Risk Management

Human and Technology

Capability Building
Technology

Organizational Structure and

Governance

Technical and
Procurement
Efficient design and
delivery; budget /
schedule adherence

Organization
Geared up to deliver

A.T. Kearney /CGD Conference/ July 2011 9

How will you set up the organization and attract &

retain the right talent?

Org. Design Philosophy

Comprehensiveness of Design
1

HO
CGD entities (Zones)
Local Units (Cities)

Bid
Management

11

Procurement

Finance

12

7
Strategy &
Planning

Activities - Illustrative
Centralized

Projects

Procurement
Call center operations?

3
Marketing &
Branding

Network O&M
Decentralized Network Deployment

13
Technical
Excellence

5
Business
Development

IT

Training
To ensure skill
building

14

Gas
Sourcing

Customer Acquisition
(Sales)

Talent Acquisition
Getting the right
people

Legal

Network Design

Asset planning strategies

Plan to acquire
& retain talent

HR

O&M
10
Regulatory

People Policy
To ensure retention

15
HSE

A.T. Kearney /CGD Conference/ July 2011 10

Poor planning and execution can significantly erode profitability will be key
differentiators between winners and also-rans

Rollout
Delay

Gas Price
Escalation

Inadequate
Coverage
(esp. high margin
customers)

Expected
RoE

HSE
Incident

0%

Capability /
Process gaps

Are you prepared to be amongst the

winners?
A.T. Kearney /CGD Conference/ July 2011 11

Thank You
Anshuman Maheshwary
Principal
A.T. Kearney Limited
Global Business Park
14th Floor, Tower 'D'
Gurgaon 122 022
Tel.: +91 124 4090 0700
anshuman.maheshwary@atkearney.com

A.T. Kearney /CGD Conference/ July 2011 12