1.

0 Introduction
1.1 What is Natural Gas?
Natural gas is an organic compound that is formed deep with in the earth crust. Natural gas is
primarily methane based. It is a safe fuel source that is commonly used in homes and business for
cooking and heating in the form of Piped Natural Gas (PNG). In vehicles it is used in the form of
Compressed Natural Gas (CNG).

Table of properties of Natural Gas

Composition is 90 % Methane (CH4) and other hydrocarbons

Colour Colurless
Odour Odourless
Specific gravity 0.6 w.r.t air
Boiling point - 161.5o C
Melting point - 185o C
Explosive limit 5% to 15% by volume in air
Auto ignition 540o C

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1.2 Background - Organization

Mahanagar Gas Limited (MGL) is one of India’s leading Natural Gas distribution companies.
Established in 1995, MGL is a joint venture between GAIL (India) Ltd., the BG Group, (U.K)
and the Government of Maharashtra.

GAIL (India) Limited, a Navratna company, is a leader in the area of Gas Processing, City Gas
Distribution & Exploration in India and Abroad. GAIL has made an all-round contribution to
country’s economy by its countrywide presence of Pipelines, Plants & Marketing network.

BG Group (UK) is a leading player in the Global energy market. BG Group is a dynamic growing
business with operation in 20 countries over five continents. The BG Group has remarkable
experience and expertise in all the areas of energy sector, particularly natural gas.

The expertise & rich experience of both out established partners coupled with support from
Government of Maharashtra gives MGL an edge to provide world-class service.

Over the past decade, MGL has to its credit the distinction of pioneering the natural gas
distribution network in Mumbai and its adjacent areas. An established household name in the
city, MGL’s gas is the solution to Maharashtra’s need for a cost effective and more environment
friendly fuel. MGL’s vision envisages provision of safe, efficient and reliable energy and
contributing significantly to a pollution free environment. MGL today is an ISO 9001:2000 and
ISO-14001 certified organization.

Over the years, MGL has been working to grow its Compressed Natural Gas (CNG) and Piped
Natural Gas (PNG) distribution network in Mumbai and its outskirts. Today, MGL has already
connected over 2,75,000 homes and 850 small commercial & industrial establishments. MGL
also supplies CNG to over 1,80,000 vehicles which include around 1,22,000 rickshaws and
50,000 taxis in Mumbai, Thane and Mira-Bhayander though its wide-spread distribution network
of over 200 kms of steel and 1800 kms of MDPE pipeline system and 123 CNG filling stations.

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Presently, the use of CNG as fuel in Taxis, autos & transport vehicles along contributes to a
reduction in pollutants in the range of more than 6, 50,000 kg (650MT) per day.

Safe and uninterrupted supply of gas to the customer is the priority of the company. To ensure
safety, MGL has as put in place robust systems & processes, which match up to the best in the
world. MGL adopted a Health, Safety, Security & Environment (HSS&E) Management system,
which provides a Framework for continual improvement in its performance. An Emergency
control room with a toll free number 1800229944 is available 24 hrs a day, 365 days a year.
Further “Dial-before-Dig” and continuous pipeline surveillance also contribute to the safety of
the system.

MGL has all the resources and competencies for the development of a gas distribution network.
British Gas, UK has facilitated MGL an access to international best practices. MGL has 11
operational offices in and around Mumbai, which ensure safe and reliable operation of its
networks.

Not forgetting its social obligations, MGL been associated with number of Corporate Social
Responsibility initiatives. The company is also focused in raising awareness about the usage and
benefits of Natural Gas –The Fuel of the Century.

LOOKING AHEAD

MGL has an ambitious Plan to extend its distribution network in & around Mumbai, both for
PNG and CNG, enhancement of CNG compression capacity and dispensing points for providing
CNG to more &more vehicles as an ongoing activity. The areas to be covered adjoining Mumbai
are Thane – Belapur, Navi Mumbai, Kalyan, Dombivili Taloja and Panvel.

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City Gas Distribution is primarily a project based business, where actual product availability
depends upon the complete commissioning of infrastructure. However, mobilizing the required
front for construction of the network is the responsibility of the Marketing department.

In initial stages of launch (1995 to 1996) the concept was difficult to penetrate in the housing
societies as there were many apprehensions about its safety and reliability. The strategy adopted
was to have one to one interaction with the prospective customers. Door to Door marketing
campaigns were conducted to create awareness about the concept. As the customer’s base grew
(1997-1998) we started conducting audio – video presentations to the housing societies.
Participation in the consumer / property exhibitions gave an edge in acquiring builder category
customers. In the year 1999 a scheme called ‘Consumer gets Customer’ was launched. According
to this scheme, a credit of Rs. 500/- was given in the bills of a consumer who referred PNG to a
new prospective consumer.

As MGL expanded beyond Chembur (1999-2002), and covered more areas in both central and
western suburbs we hired Direct Marketing Agencies (DMA) to increase the customer base. In
the year 2000 Bulk registration scheme (BRS) was introduced and over the period of time as the
users developed confidence about the concept, the word of mouth publicity did it all to get the
targeted penetration level.

The demand for the connections increased manifold. The demographic factor of the city was the
hurdle in bridging the gap between the demand and supply. This resulted in huge gap between
registrations and conversions.

The present strategy “Commitment before registration” has been adopted to acquire customers
from new buildings and is linked to the projects ability to finally reach the customer in a specified
duration. Unless we are sure of gas connection in a specified duration, registrations are not
collected. Project, Planning and Marketing team jointly certifies the time schedule for the
gasification and accordingly registrations are collected.

For registrations from existing gasified buildings online camps are organized so that we can
convert new customers and at the same time convert the pending customers.

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Chronology of R&C Charges Schemes

S no. Schemes Period Registration and Connection Charges

(inRs.)

From To Pre- Reg Connection Total

Regn. n

1 Pilot 08/05/1995 End of 1995 5500 5500

(IRS)*

2 IRS End of 31/05/1999 2000 4000 6000

1995

3 Installment End of 31/05/1999 2000 5280 7280

(24 1995
months) (Rs. 220 x
24)

Installment End of 31/05/1999 2000 5940 7940

(36months) 1995
(Rs. 165 x
36)

4 IRS 01/06/1999 30/09/2000 3000 5000 8000

5 IRS 01/10/2000 29/01/2004 500 2000 4000 6500

BRS# 01/10/2000 29/01/2004 500 2000 2500 5000

6 IRS 30/01/2004 Till date 500 2000 2500 5000

*IRS – Individual Registration scheme

#BRS – Bulk Registration scheme

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1.2.1 Departmental roles and responsibilities

Marketing Department

• Marketing Department is overall responsible for Domestic Consumers. Framing consumer

friendly policies, developing procedures, Customer Satisfaction survey to assess the brand
image of the company and take remedial measures.

• Demand generation activities so that adequate front is generated in achieving the

conversion targets.

• Coordinate with all the departments till the customer is converted.

• Responsible to communicate the schedule to the customers and collect R&C charges.

• Regular monitoring of complaints and ensure resolution of the same.

Planning Department:-

Planning Department decides upon the new areas which are to be opened up and is responsible
for designing of Steel and Medium pressure lines for the same. Material procurement/ inspection
and vendor development is also done by Planning.

Projects Department:-

The onus of actual work execution rests with Projects Department. Once the technical feasibility
of a particular Building/ Society or Area is carried out by the Planning Department and
registrations are collected by Marketing Department, Projects take care of MP laying, LP laying,
GI/ERW, Meter, MCV & Copper installations and charging of connections after ensuring all
necessary permissions are in place.

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Operations & Maintenance Department (O&M):-

Subsequent to conversions, O&M department takes care of the customer service. It is responsible
for any emergency, leakages, supply cutoff, disconnections and any such requests on a routine
basis.

Health, Safety, Security & Environment (HSSE):-

HSSE issues guidelines for safe execution of work processes. It ensures that all the Standards and
Specification related to safety of man power and customers are adhered to and trainings and
guidelines are provided to teams for safe work execution and to customers, for safe usage of
PNG.

Finance Department:-

Finance Department authorizes clearance for payments to Contractors, Statutory Authorities and
to customers in case of refunds. It also has the responsibility of good financial health of the
organization.

Contract & Procurement (C&P):-

C&P awards Work Orders to the contractors for different works. It also awards the Purchase
Orders to Vendors for various materials which are purchased by the organization.

Domestic Billing:-

Once the customer is converted on Natural Gas they are transferred to Billing department for
further activities related to billing. This department takes care of records and data updating in an
electronic form. Brief information on billing activities are as follows:

• Billing is done on Bi monthly basis with one actual reading and one on assessment.

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 • If the customers first billing cycle fall on assessment cycle the universal average of 0.5
standard cubic meter per day is applied. If the customer has prior billing history than the
assessment is done based on the average consumption.

• If the actual meter reading is not received in two consecutive cycles then the customer is
transferred under shelf category. For such customer CRM does outbound calls and based on
the feedback received from CRM, billing department transfer the customer to normal billing
process. For details please refer CRM Manual.

• There is minimum billing of Rs. 25/-.

• Customer have the option to make their payments through Electronic Clearing Scheme
(ECS), Voluntarily Deposit Scheme (VDS) Skypak drop boxes etc. For other details please
refer ‘Customer Handbook’.

Asset Integrity:-

The primary objective of the asset integrity management system is to ensure ongoing commercial
viability of the asset operations by ensuring that the risk associated with the equipment failures
are within acceptable level.

Customer Relationship Management :-

CRM Cell has a wide scope of activities ranging from receiving of calls, constant monitoring of
the same, updating of records, giving feedback to the consumers and many more with regard to
the complaints, queries and service requests raised by the existing as well as the prospective
Customers.

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1.3 Background – Study

The current marketing process of MGL is long-drawn-out process. The lengthening of the
process has made it inefficient and ineffective. The time delay in the delivery of gas to consumer
has further widened the gap between organization and consumers. Moreover, Petroleum and
Natural Gas Regulatory Board (PNGRB) has laid certain guidelines for entities operating in city
gas business. Thus, a need was felt to go back to the process and restructure it in the wake of
regulations and future competition.

1.4 Petroleum & Natural Gas Regulatory Board

 “The Board is expected to regulate refining, processing, storage; transportation and

distribution of petroleum and natural gas and strive to ensure uninterrupted gas supply.”
Murli Deora

Mar 22, 2006

Petroleum and Natural Gas Regulatory Board (PNGRB) was constituted by Government of India
in May 2006 by enactment of PNGRB Act 2006.

1.4.1Objective

“To regulate the refining, processing, storage, transportation, distribution, marketing and sale of
petroleum, petroleum products and natural gas excluding production of crude oil and natural gas
so as to protect the interests of consumers and entities engaged in specified activities relating to
petroleum, petroleum products and natural gas and to ensure uninterrupted and adequate supply
of petroleum, petroleum products and natural gas in all parts of the country and to promote
competitive markets and to promote competitive markets and for matters connected therewith or
incidental or incidental thereto”

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1.4.1.2 Functions & Power
• To ensure continuous supply of petroleum, petroleum products and natural gas in the
event of war, natural calamity or other such circumstances, the central government can
take over the management of the facilities of any entity or retail outlet. The affected
entities will have an opportunity to be heard if possible and the collector of the district
shall determine the compensation payable

• The Petroleum and Natural Gas Regulatory Board Fund shall be constituted. Grants, fees,
penalties and charges received by the PNGRB will be credited to the fund. The Fund will
be used towards expenses incurred in carrying out the provisions of the Act, including
payment of salaries, allowance and pension.

• The PNGRB shall maintain a Petroleum and Natural Gas Register which will contain
details of registered/ authorized entities. The register will be open to public viewing and
any person can obtain a certified copy of any entry on payment of a fee.

• During an initial period of three years, the PNGRB shall monitor

(1) Agreements entered into and approved by the government before commencement of
the act between oil companies for sharing petroleum, petroleum products or infrastructure
facilities

(2) Setting up of dealerships and distributorships of motor spirit, superior kerosene, high
speed diesel and LPG and CNG stations.

• The PNGRB appears to have independent powers to determine tariffs, the basis on which
pipelines will be common or contract carriers etc.

• The regulations governing these issues will be made by the PNGRB and laid down in
Parliament.

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1.4.1.3 Access to Transmission Pipelines
o Under the PNGRB Bill, all transmission pipelines (except pipelines to a specific
customer and upstream pipelines) will be either common or contract carriers.
o The Revised Policy for Development of Natural Gas transmission pipelines and
City or Local Gas Distribution Networks pipelines suggests that authorization for
laying a pipeline will be done through a competitive bidding process.
o Parties will be given three months to declare interest in laying the pipeline. The
total capacity of the pipeline will be that of the proposer as well as contracts
entered into.
o The proposer will have to satisfy the condition that in future, capacity can be
increased by 25% within a 120 day notice period. This excess capacity will be
available for use on a non discriminatory, open access, first come first serve basis.

1.4.1.4 Tariffs for Transmission

o The tariffs for transmission of natural gas through common or contract carrier are
to be determined by the Board.
o The draft regulations indicate that initial tariffs for pipelines may be determined
on a cost of service basis which will include components such as operating cost,
depreciation, reasonable rate of return on capital employed etc.
o The PNGRB will prescribe the methodology for determining the various
components by benchmarking costs against similar projects and considering
efficiency norms.
o While the cost plus formula does not provide incentives to improve efficiency, this
is an issue that many regulators around the world are grappling with.
o In the United States, tariffs cover operating costs and a reasonable rate of return on
capital

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1.4.1.5 Drafts made by PNGRB

 Draft Regulations on CGD Network Authorization

 Draft Regulations on CGD Exclusivity

 Draft Regulations on CGD Network Tariff & Attachment to CGD Network Tariff
 Regulations Authorizing Entities for Development of NG Pipelines

 Regulation for Pipeline Tariff for Natural Gas Pipelines :NG Pipelines Tariff
Format

 Affiliate Code of Conduct

 Regulations for Declaring Common Carrier or contract carrier

 Regulations for Access code for NG Pipelines and CGD network

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 1.4.2 Notification on Tariff

“Network tariff” means the weighted average unit rate of tariff (excluding statutory taxes and levies)
in rupees per million British Thermal Units (Rs./ MMBTU) for all the categories of consumers of
natural gas in a CGD Network”

Procedure for determination of network tariff and compression charge for CNG

The network tariff and compression charge for CNG in a CGD network shall be determined by
considering a reasonable rate of return on normative level of capital employed plus a normative level
of operating expenses in the CGD network.

1. Financial feasibility.

The entity to which these regulations apply shall submit all technical, operating, financial and cost
data of the CGD network or CGD network project that may be required by the Board for
determination of the network tariff and compression charge for CNG.

2. Methodology for determination of network tariff and compression charge for CNG.

The unit rates of network tariff and the compression charge for CNG to be charged for a period shall
be the calculation based on the “Discounted Cash Flow” (DCF) methodology1 considering the
reasonable rate of return as the project’s internal rate of return as specified in clause 3. The
parameters relevant to the

3. Reasonable rate of return.

The reasonable rate of return shall be the rate of return on capital employed equal to fourteen percent
post-tax considering the rate of return on long-term risk-free Government securities and the need to
incentivize investments in creation of CGD infrastructure. The rate of return on capital employed
once applied to a CGD network shall remain fixed for the entire economic life of the project.

Note:

The pre-tax rate of return on capital employed shall be computed by grossing-up fourteen percent by
the nominal applicable rate of income tax applicable for corporate assesses as per the provisions of
the Income Tax, 1961.

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4. Return on total capital employed for network tariff and compression charge for CNG.

(1) The return on total capital employed shall be determined separately for the capital employed in -

(a) the common infrastructure in the CGD network (i.e., consisting of the pipeline from the tap-off
point in the natural gas pipeline up to the city gate station, if any, city gate station, city gate
distribution network consisting of pipelines, district regulatory station and distribution related
equipments and facilities, but excluding CNG compression and dispensation related equipments and
facilities) as specified in clause a) and clause c) of Attachment 1 of Schedule A for determination of
the network tariff;

(b) online compressors and related facilities as specified in clause (b) of Attachment 1 of Schedule A
required for compression of natural gas into CNG for dispensation in the CNG stations in the CGD
network for determination of the compression charge for CNG. Land for online compressor and all
equipments and facilities beyond the discharge valve of the online compressor for CNG are related to
the activity of dispensing of CNG and hence not to be considered for return on capital employed.

(2) The reasonable rate of return shall be applied on the total capital employed to determine the return
on total capital employed in the project over its economic life and the authorized entity is free to
leverage the financing of the project in any suitable manner.

(3) The total capital employed shall be equal to the Gross Fixed Assets in the project less
accumulated depreciation 2 plus Normative Working Capital (equal to twenty days of operating cost
excluding depreciation).

(4) The Gross Fixed Assets shall be equal to their actual historical cost of acquisition (including the
cost of any subsequent replacement or improvement or modification) or that normatively assessed by
the Board, whichever is lower, as required in the CGD network or CGD network project over its
economic life as per the following basis and principles3 that may be considered as required to create
an efficient and robust CGD infrastructure, namely:-

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(a) Treatment of an investment in the fixed asset in the determination of total return on capital
employed shall be as per the basis indicated in Attachment 2;

(b) Capital costs in similar projects elsewhere in India benchmarked on a “like to-like” basis;

(c) Appropriateness of the pipeline design and the operating philosophy with regards to maximum
allowable operating pressure;

(d) optimization of the equipments and facilities (online compressors for CNG compressors, metering
systems, SCADA, fire fighting, etc.) required based on an assessment of the appropriate available
technology;

(e) design parameters of the equipments, like, online compressors for CNG;

(f) assessment of the latest costs of major equipments in the CGD network -
pipelines, online compressors, laying or building costs, project management consultancy, pre-
operative expenditure, etc;

(g) treatment of costs incurred in providing last mile connectivity (LMC, i.e., between the riser
isolation valve before the metering unit and the Suraksha hose pipe connecting the burner in the
domestic PNG

customer’s premises) in the return on capital employed for network tariff shall be as per the procedure
indicated in Attachment 3.

5. Operating costs.

Operating costs 4 required in the operation and maintenance of –

1) common infrastructure in the CGD network; and

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2) online compressor facilities for compressing natural gas in to CNG

shall be computed separately for sub-clause 1) in the determination of network tariff and for sub-
clause clause 2) in the determination of compression charge for CNG over the economic life, on an
actual basis or based on a normative assessment by the Board, whichever is lower, over the following
functional cost head, namely:-

(i) consumables;

(ii)utilities (power, fuel and water);

(iii) salaries and wages;

(iv)Repairs and maintenance;

(v) Insurance premia on fixed assets (excluding on the value of loss of profit) and on line-pack
volume; administrative overheads (to the extent not classifiable under sub-clause (i) to(v), related and
also commensurate to the level of operations in the CGD network);

(vii) Depreciation on fixed assets based on the rates as per Schedule VI to the Companies Act, 1956;

(viii) miscellaneous income (realizable from a fixed asset included in the return on total capital
employed or out of an expense considered as an operating cost, but does not include interest income,
profit or loss on sale or transfer of any fixed or other asset), if any, shall be netted from the operating
cost.

1.4.2.1 Volumes to be considered in determination of unit network tariff and unit

compression charge for CNG.
The volume to be used as divisor for the purpose of determination (including for subsequent review
periods) of the yearly unit network tariff and unit compression charge for CNG shall be equal to -

a) the actual volume of natural gas (including the volume of natural gas transported by pipeline
till the online compressor for CNG) transported in the CGD network; and

b) actual volume of natural gas compressed as CNG.

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Note:

Adjustment for the volume correction required due to actual volumes in a review period being
different than that considered in the divisor in the determination of unit network tariff or compression
charge for CNG shall be carried out on a prospective basis in the next review period.

7. Economic life.

The economic life of the project for the purpose of determination of network tariff and compression
charge for CNG shall be as specified in the Petroleum and Natural Gas Regulatory Board (Exclusivity
for City or Local Natural Gas Distribution Networks) Regulations, 2008.

8. Review of network tariff and compression charge for CNG.

a) review of network tariff and compression charge for CNG shall be carried out separately during
each review period;

b) review period shall normally be a period of five years (commencing from 1st of April and ending
on 31st March of next year) from the end of the fifth year of the economic life of the project;

c) the actual performance with respect to the capital and operating costs during the previous review
period shall be monitored against the parameters identified under clauses 4 and 5 and the variations
shall be adjusted in the calculations on a prospective basis considering the remaining period of the
economic life of the CGD project;

d) The Board may, either on its own or on the entity’s request, carry out review in between two tariff
review periods, considering-

i) mandatory conversion of vehicles using MS, HSD or any other fuel into CNG fuel to the
extent not envisaged earlier and necessitating incremental investments;

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 ii) changes in the applicable nominal rate of income tax used for grossing-up the rate of
return on capital employed;

iii) sudden change in any parameter used in the determination of the network tariff or the
compressed charge for CNG;

1.4.2.2 Treatment of costs incurred in last mile connectivity (LMC) in the

determination of total return on capital employed for network tariff

1.

a) the new PNG domestic consumers to be connected by the entity post authorization shall not be
required to pay the LMC charges upfront and in such a case, the related facilities and equipment shall
be the property of the entity and eligible for return on total capital employed;

b) if such entity has already provided connectivity to some domestic PNG customers and upfront
collected the LMC charges, the facilities and equipments, like, regulator, meter, pipe, valves, etc.
shall be the property of the domestic consumer:

Provided that in case the actual cost of providing last mile connectivity to a PNG domestic customer
exceeds the amount collected upfront by the entity from the PNG domestic customer, then the balance
amount (that is, the difference between the actual cost of providing last mile connectivity and the
amount so collected from the domestic PNG customer) shall be considered for return on total capital
employed;

c) in order to allow differentiation in the treatment of PNG domestic customers, the network tariff
shall be split over the following charge elements, namely:-

i) network tariff charge for the common CGD infrastructure before the pipe connecting the
metering unit;

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 ii) charge towards last mile connectivity, that is, equipments and facilities from the pipe connecting
the metering unit and onwards upto and including the suraksha hose pipe connecting the burner;

d) domestic PNG customers who have paid the LMC charge upfront shall be required to pay only the
network tariff charge for the common infrastructure specified at item. Other domestic PNG customers
shall be required to pay both the charges [that is, for the common infrastructure mentioned at item i)
of sub-clause c) and for the LMC charges mentioned at item ii) of sub-clause c)] through the network
tariff, in addition to paying the interest-free refundable security deposit of up to a maximum of
Rs.5,000.

2.

Entity may collect refundable interest free security deposit as specified under the Petroleum and
Natural Gas Regulatory Board (Authorizing Entities for Laying, Building, Operating or
Expanding City or Local Natural Gas Distribution Networks) Regulations, 2008. Such deposit is
towards the safe-keeping of the meter and is to be refunded in full to the domestic PNG customer in
case of a dis-connection. Further, since the amount collected as interest-free refundable security
deposit shall exist as a liability in the books of accounts of the entity; the same shall not be reduced
from the total capital employed while determining the network tariff.

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1.4.3Exclusivity

1.4.3.1 Rationale for exclusivity

The rationale for allowing exclusivity to an entity is explained in Schedule A, which only explains the
rationale for allowing exclusivity to entities to lay, build, operate or expand CGD networks, is not
part of this regulation, does not have any legal force and should not be quoted or relied upon while
interpreting these regulations

Rationale for allowing exclusivity to lay, build, operate or expand a CGD network

1 Exclusivity-

a) For laying, building or expansion of the CGD network during the economic life of the project; and

b) in terms of an exemption from the purview of the contract carriage or common carrier for a limited
period of time is envisaged with a view to facilitate the development of a planned and integrated
CGD network with appropriate priorities for end-use of natural gas as also the network spread besides
providing incentive to the entity for investing in such project.

2 Exclusivity as per sub-clause a) of clause 1 is or shall be necessary to facilitate the development and
operation of an integrated network by a single entity as per the prescribed technical standards,
specifications including safety standards. This shall also obviate multiple digging-up of lanes,
roads, etc. in the authorized area.

3 Exclusivity as per sub-clause b) of clause 1 is or shall be necessary due to the following reasons,
namely:-

a) During the initial phase of the development of city or local natural gas distribution network,
there shall be a need to have a close synchronization between the development of requisite
infrastructure and the ramp-up in the natural gas volumes for different end-consumers in different
areas. It is expected that the development of the city or local natural gas distribution network would
be quicker if the same is guided by entity’s own plan (which is responsible for meeting various

20
service obligations) rather than the expectation of other potential marketers of natural gas in the
network. Also, it shall be more practical for the Board to deal with one entity rather than multiple
entities to ensure a strict compliance with the service obligations by the entity in the initial period;

b) during such limited period of exclusivity, the authorized entity could be made directly responsible
for meeting the desired service obligations, viz., achieving maximum PNG domestic connections and
other related aspects;

c) besides such an approach is also likely to incentivize investments in this capital intensive business.

4 Ideally, while the exclusivity as per sub-clause a) of clause 1 shall be for the economic life of the
project, the exclusivity as per sub-clause b) of clause 1shall depend upon various factors, viz., the
projected natural gas demand build-up in the city or local area (which in turn would depend upon the
key drivers for demand in that city or local area, such as, level of industrial or commercial activity,
vehicular population and conversion of vehicles in to CNG, potential domestic PNG customers,
consumer preferences, price of alternative fuels, etc.), geographical spread and population, projected
capital cost of the project, investment climate, etc. However, considering that these factors shall vary
from city to city, a credible assessment of exclusivity period based on these factors may not be always
practical. Thus, it is proposed that the period of exclusivity at sub-clause b) of clause 1 may be
limited to five years for cases where an entity proposes to lay, build, operate or expand a CGD
network. However, where an entity is laying, building, operating or expanding a CGD Network
before the appointed day and has been authorized by the Central Government or is authorized by the
Board under the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build,
Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008, the period of
exclusivity shall be for three years (if the entity has been operating for three years or more before the
appointed day) or five years (if the entity has been operating for less than three years before the
appointed day).

The Board may allow an entity exclusivity for laying, building or expanding of CGD Network over
the economic life of the project subject to the following terms and conditions, namely:-

(a) during the economic life which is normally expected to be twenty five years of the CGD
network project consisting of network of pipelines, online compressors for compressing natural gas
into CNG and other allied equipments and facilities, the authorized entity shall carry out further
expansions required through pipeline capacity building and CNG infrastructure as well as carry out

21
replacements and up gradation of assets and facilities as and when necessary in order to maintain the
network system integrity at all times including keeping it abreast of technical advancements and the
entity shall meet the requirement for investment in pipelines and other allied equipments including
online compressors for compression of natural gas into CNG which may emerge either to meet the
entity’s own requirements or other entities requirements post-exclusivity period as per regulation 6
besides complying with the standards

(b) The economic life of the project shall commence from,-

(i) in case an entity proposes to lay, build or expand a CGD network on or after the
appointed day, the date of grant of authorization to the entity by the Board under the
Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build,
Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008;

(ii) in case an entity is laying, building or expanding CGD network before the appointed day,
where the entity has either an authorization from the Central Government before the
appointed day or an authorization from the Board under the Petroleum and Natural Gas
Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or
LocalNatural Gas Distribution Networks) Regulations, 2008, the economic life of the CGD
Network project shall commence from the start-up date of the commencement of physical
activities of laying, building or expanding the CGD network.

(c) at the end of the economic life of the project, issue of allowing further extension of the period
of exclusivity or not may be considered by the Board for a block of ten years at a time, depending
on the satisfactory compliance of the service obligations and quality of service norms

Exclusivity from the purview of common carrier or contract carrier.

(1) The Board may provide exclusivity to an entity proposing to lay, build, operate or expand a
CGD network from the purview of common carrier or contract carrier for a period of five
years from the date of authorization subject to the conditions that the entity meets the service
obligations.

(2) In case an entity is laying, building, operating or expanding a CGD network before the

22
 appointed day and has been authorized by the Central Government or has been authorized by
the Board under the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to
Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks)
Regulations, 2008, the period of exclusivity from the purview of common carrier or contract
carrier shall be -

(a) three years from the date of issue of the letter by the Board for allowing such an
exclusivity in case the entity has been operating the CGD network for three years or
more before the appointed day;

(b) five years from the date of issue of the letter by the Board for allowing such
exclusivity in case the entity has been operating the CGD network for less than three
years before the appointed day.

The entity allowed exclusivity under regulation 6 shall comply with the following service obligations
during the exclusivity period, namely:-

(a) in respect of an entity proposing to lay, build, operate or expand a CGD network after
the appointed day and which has been authorized by the Board under the Petroleum
and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or
Expand City or Local Natural Gas Distribution Networks) Regulations, 2008, the
entity shall -

(i) provide domestic PNG connections as per the bid;

(ii) lay and build steel pipeline as per the inch-kilometer bid;

(iii) reach all charge areas or wards in the authorized area through
pipelines

of adequate size to meet the demand of the consumers in these

charge areas or wards; and

(iv) provide piped natural gas connection on demand to a domestic

consumer for cooking purposes within a distance of twenty five
meters of the metering unit at the consumer’s end till the tap-off in the

23
 pipeline:

Provided that the physical achievement shall be monitored by the Board

on a quarterly basis;

(b) in respect an entity laying, building, operating or expanding a CGD Network before
the appointed day and which has been either authorized by the Central Government or
by the Board under the Petroleum and Natural Gas Regulatory Board (Authorizing
Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution
Networks) Regulations, 2008, the entity shall -

(i) achieve the targets in respect of providing PNG domestic connections

and
laying and building steel pipeline inch kilometer as per sub-clauses (i)
and
(ii) of clause (a) of sub-regulation (1) at the levels derived based on the

successful bids of similar placed cities or local areas in terms of the

population as per the census of India 2001 or in the absence of such
similarly placed cities or areas, the cities which come closest to these
cities or areas in terms of population by suitable extrapolation or
interpolation;

(ii) reach all charge areas or wards through pipelines of adequate size to
meet the demand of the consumers in these charge areas or wards;

(iii) provide piped natural gas connection on demand to a domestic

consumer
for cooking purposes within a distance of twenty five meters of the
metering unit at the consumer-end till the tap-off point in the pipeline:

Provided that the physical achievement shall be monitored by the Board on a quarterly basis.

24
2.1 Present Policies for Domestic Customers

Registrations

1. Registration to be collected from only permanent structures (technically feasible). Gas

to be consumed only for the domestic purpose i.e. cooking and geyser (water heating).

2. Minimum of 20% registrations needs to be obtained from the targeted buildings.

Maximum time frame for providing the gas connection is 24 months from the date of
registration.

3. Collection of registration and connection charges (R&C) as approved by the Board from
time to time.

Refunds

4. Once the connection is done the R&C charges paid by the customer is non refundable.
Refund (refer refund policy in CRM manual Chapter ___ ) is only permissible if no job is
carried out and under the following parameters:

(a) Technically not feasible (TNF)

(b) Project with permission difficulties (PWPD)

(c) Customer Not Interested (CNI)

(d) Insufficient Registrations (IR)

5. Interest is levied on the refund amount to all customers not converted beyond 24 months.

25
Address Transfer

6. Address transfer is permissible if no job is done in the flat for which the customer has
applied and gas is available at the new location

7. Address can be transferred in the same wing after the conversion is done once the
payment is made as per the quotation

Name Transfer

8. Name transfer is permissible after payment of Rs. 250/- towards administrative charges.
No charges are applicable in the event of name transfer due to death of the consumer.

Miscellaneous

9. In case of Bungalows, the R&C charges are collected at actual, if the pipelines exceeded
the standard bill of material.
Additional Rs. 350/- is charged if the customer wants a ‘T’ connection for an additional gas
stove.

10. Any existing consumer applying for a new connection in another location where PNG
supply is available shall get the connection @ Rs. 5000/- irrespective of the prevailing
R&C scheme.

11. Once the connection is given in the building and if at a later date the same building goes
for redevelopment then the existing connections are permanently disconnected. The
existing customer will have to register freshly to obtain the connection.

Kindly refer to Appendix 1.1 to 1.9 for existing processes.

26
 2.2 Existing Process for Domestic Sector (PNG)
1. Survey by marketing for potential analysis
A survey is conducted by marketing department for identifying the potential in an
area defined by planning department. The DMA or PMC carries out the survey
and identifies the societies or buildings. Simultaneously the potential of the
building is also identified. After identification of the society, DMA approaches the
society Chairman or Secretary for gas connection. If interested a camp or an audio
visual session is organized where residents are informed about the benefits of
natural gas. Once requisite number of registrations are received from a building, a
survey is done by a cross functional team of marketing, planning and projects.
They decide the course of pipeline and conversion aspects. The details of the
project are sent to the HOD’s for approval

2. Registration Requisition Form (RRF) from consumer

After the awareness phase PMC forwards the number of interested customers to
MGL. As first hand confirmation PMC gets filled first a registration requisition
form. It ensures the interest of customers.

3. Registration
After receiving the requisition forms and request by PMC for registration forms,
registration forms are issued to PMC. PMC gets the form filled and collects the
payment. The collected details are sent to data centre for entry into the database.

4. Permission process initiated

Once, all the HOD’s analyzed the feasibility of project and approve the project the
statutory permissions process is initiated. This includes permissions from BMC,
MMRDA, Traffic, Fire department, Chief Controller of Explosives, etc.

27
5. Laying of lines(MP/LP/GI)
After receiving permissions from the authorities pipeline laying work is started.
The pipeline laying includes laying of medium pressure line outside the society
and low pressure and GI lines inside the society premises.

6. Conversion
After laying the low pressure and GI network inside the society, finally meter
control valve, regulator, meter and copper tubing is installed inside the kitchen of
customer. Once all the installations are done inside the kitchen gas supply is
started and bills are generated on bimonthly basis.

28
2.3 Summary of the present market situation

 As suggested by the study and research carried out by planning, commercial and
marketing department, a potential of approx 800,000 has been identified.
 Total no of Registrations till 31st March 2008 have been 394,456
 The total no of District Regulatory Systems operating are 46.
 With current methodology and operations an average penetration level of 63% has
been achieved

Graphical Representation of Year-on-Year Trend

29
2.4 Drawbacks of Current Process

 Prolonged process
The present process of giving gas to consumers of domestic segment is a time consuming
process. The time from registration to conversion varies from 2 months to 1 year for
gasified and non-gasified buildings. Due to lengthy and complex process customers have
to wait for a longer duration. This increases the level of dissatisfaction among the
consumers. Due to time taken, we also lose the revenues for the same period. Thus our
project period is also increased.

Kindly refer to Appendix II for analysis of conversion time.

 From registration to conversion

 Minimum 3 months for online connection
As mentioned above the time taken varies from 60 to 90 days for converting a
customer residing in gasified building. The process for gasified buildings gets
lengthened due to delay in mobilization of resources. Delay in mobilization
increases the time taken. Once the resources are mobilized the time taken for
conversion is maximum 1 day. Thus for work of 1 day we make customer wait for
60 to 90 days.

 Minimum 1 year for new building

Similarly, approximately 1 year is taken in converting customers from new
buildings or non-gasified buildings. The time taken may as well go beyond 1 year
also. The time consumed is due to the non-readiness of infrastructure. After
receiving the registrations from a new building laying of medium and low pressure
lines is started. The line laying itself takes approximately 6 to 9 months if
everything goes well i.e. all permissions are received and no objections from any
of the departments. If any department denies the permission the work gets delayed
by unknown time. All this becomes a reason for customer dissatisfaction and a
contributing factor to decline brand image.

30
 High investment for same infrastructure
Apart from the time which present process takes, it also incurs a high investment on same
infrastructure. The redundant cost of resources for providing connections to customers in
gasified buildings increases the cost of infrastructure substantially. Thus we end up
paying more than what we should actually have. This results in decrease of our expansion
plans due to less resource. Moreover the contractors are also reluctant for online
connections because the efforts and cost which are required for online connections do not
justify the payments they receive. It is also a losing point for us because we pay them
more do get our work done.

 Loss of revenue
Since customers are converted slowly, this results in loss of revenue for the period they
are not converted. Thus we can say that we lose the revenues for the period from
registration to conversion. The study for the same has been done and loss in revenues has
been shown in the financial analysis part.

 Inability in fulfillment of commitment made to customers

The time which is committed to the customer is not followed due to the time taken in
laying the infrastructure. The customer’s dissatisfaction level increases as neither
commitment made to him is fulfilled nor any communication is made regarding the same.

 Declining brand image

All the above factors combine to decline the brand image of organization. These are the
reasons due to which MGL could not achieve the levels which they should have had. An
organization in monopoly could capture only 40% of potential in 13 years of operation.
The problem in laying of infrastructure has affected the business and its reputation
heavily. Since registrations were taken even before gas had reached those areas, created a
huge time gap from registration to conversion and that to beyond promised time limits.
All together, this has damaged the reputation of organization.

31
2.5 Possible Strategies for increasing profitability of PNG

 Gasifying all the kitchens of a building by intruding into the kitchen of each &
every consumer
The sole purpose of this strategy is to make our presence felt in every household.This
strategy aims at achieving the economies of scale. The strategy focuses on laying the
infrastructure first and then going for registrations. This would remove most of the
drawbacks of existing process such as delay and non-fulfillment of commitment.

 Flow of Activities downstream of MP to Conversion:

M.P. L.P. G.I Conversion

This strategy goes in sync with the above strategy. While defining the scope of work for
the contractors a proper time schedule with priority order should be defined. This would
discipline the work and flow of work will be proper. In any case there should not be
breach of the flow of work.

 Make contractors responsible for the loss and wastage of material

There is a huge amount of wastage in materials which are accounted by MGL. The
wastage occurs at contractors end due to ill managed work or improper planning.
Therefore contractor should be made responsible for all the wastage occurring due to
improper or ill managed work.

Here we will be discussing only the first strategy of gasifying all the kitchens of a
building. We will find justifications for implementing this strategy.

Let’s look at the justifications.

32
 2.6 Rationale for Strategies

 Economies of scale
Higher the size of infrastructure lower will be the cost. This will help us reduce the
redundant cost as well improve the speed of connection.

 Significant reduction in the cost of laying infrastructure

Due to reduction of redundant cost and huge work the cost of laying is reduced.
This gives us a benefit of surplus in our balance sheet. Apart from increased profit
revenues also go up

 Significant reduction in the time for conversion

As against present time requirement, the conversions can be done within 48 hours
of receiving the payment of customer. This would reduce the conversion time from
present 90 days to 7 days.

 Increase the level of customer satisfaction

There will be an increase in the level of customer satisfaction due to prompt
response and timely conversions.

 SOR can be very well negotiated

SOR of contractors can be negotiated to the benefit of MGL due to increase in size
of infrastructure. With high volume of work, price to be paid for it can be easily
negotiated.

 Savings of redundant costs and wasted materials

Since the fundamental of online connections is removed in this plan hence
redundant or recurring cost which was incurred will be reduced substantially.

 Connections to tenants
As per regulations, since deposit has become refundable therefore the potential
which was untapped due to tenants can also be covered.

33
 Mobility of tenants
Since tenants are highly mobile, i.e. they shift places therefore the mobility can be
captured as wherever customer shifts we already have our network there.
Therefore the tenants who were reluctant due to unavailability of gas in area or
building will also be captured.

34
2.7Advantages
 No need of Registration Requisition Form(RRF)
The need of registration requisition forms is removed as we need not take any
commitment from customer regarding the connection. Since we are laying the
infrastructure before and then taking the registration, customer needs to fill the
registration form directly and make the necessary payments.

 Since registrations start after installing MCV, marketing commission given to Marketing
Company’s can be reduced- Cost reduction
As registrations are started after the network is ready, therefore the SOR for marketing
can also be negotiated which could reduce our cost substantially. Since the effort of
PMC’s will reduce therefore cost should also be reduced.

 80% penetration within 2 years

We will achieve the maximum penetration level in a span of 2 years as conversion time is
reduced and due to ready infrastructure more consumers will be interested.

 Conversion efficiency becomes 300%( 6 connections against 2 connections

per day)
As and when a customer requests for gas connection, we can convert the customer within
a very small frame of time. This would happen because only inside kitchen job needs to
be done. One inside kitchen job approximately takes 45 to 60 minutes. Initially it used to
take approximately 4 hours fro conversion as major time used to go in lateral connection
from GI riser. Since now no lateral work needs to be done, hence a huge amount of time
is saved. If a plumber team works for 8 hours shift, they would easily convert 6 customers
as against present 2.

 Right Of Way – minimum

 No effect of Weather conditions
 No society dispute
 Higher probability of fulfilling the given commitments

35
 3.0 Proposal
1. To gasify all the kitchens of a building by installing meter control valves in each kitchen.
This is to be done irrespective of registrations. We will be taking the registrations after we
install the valves and line is charged.

2. The registration process starts after the installing of valves. The customer has to fill the
registration form and make necessary payments. Once the payment is realized, meter can
be installed inside the customer kitchen and he could be supplied gas.

3. Reconciliation and issue of materials from store will be based on customer number. Since
now we would be able to recognize each and every customer, the material wastage can be
reduced. As the material is now being issued on basis of customer, it will not only help us
identify the exact amount of material being consumed but will also help us manage our
inventories in a better way.

3.1.1 Process
The process for this proposal starts by identifying the potential of the area. Once the area is
found feasible both technically and economically, the permission processes from statutory
authorities and respective societies will be initiated. After receiving the permissions medium
pressure, low pressure and GI pipelines will be laid.

Now we approach the customer with registration form and take necessary documents and
payment.

After realization of payment, intimation has to be given to respective area in-charges for
converting the particular customers.

36
3.1.2 Diagrammatic Representation
Before going into the financial details of the project let us visualize how this project would
look like?

The diagram shows the present style of working.

The dark lines are the GI lines. The circles are the
converted customers. As is visible, presently if
we get 3 customers out of 8 kitchens (as shown in
the diagram) we convert them and leave the rest.

Now, when remaining consumers request for the

connection, we have to mobilize the resources so
as to convert them. This mobilization requires a
huge time and money investment both by MGL
as well as contractor. Many a times we do not go
to convert a single customer as the costs which
will be incurred are not justified. Thus we wait
for at least for a cluster of 2 or 3 customers. This
waiting time may sometimes even go to 1 year which is huge. Thus, we need to reduce the
time for conversion and simultaneously the cost.

The proposed strategy will make exterior of the building look as shown in figure

As shown in the diagram, the dark lines indicate GI lines and

circles represent the meter control valves. The proposal
has said that we should install valves in all the
kitchens. By installing these valves, we have two
advantages:

1. We would be saving the redundant cost towards

ladders, scaffoldings, labour, etc which are
required during second or subsequent visits. This
would result in cost savings.

2. The time taken for conversions will come down

significantly which would increase the customer
satisfaction level.

37
3.2 Financial Analysis

3.2.1 Revenue Calculation:

The following revenue analysis has been done to find out by how much revenues will increase if
we implement the strategy discussed above. The revenue calculation has been done for a period
of five years because network tariff will be revised every five years. Therefore we can recover all
our investments from network tariff itself. Hence we will be doing all our calculations for a
period of five years.

Following are the assumptions which have been taken to calculate the revenues.

 Assumptions
• Number of Flats per building – 30
• Maximum Penetration – 80%
• Average Penetration – 50%
• Potential – 24(80% of 30 flats)
• Average Consumption – 0.5 SCMD
• No of Days – 365
• Price of Gas – Rs.10.71 per SCM
The penetration level will reach its peak in 2 years which otherwise would have taken 4
years

Formula:
Annual revenue = (N*C*D*P)
Where,

N - No. of customers

C - Consumption per day per customer (0.5 scmd)

38
 D – No of days in a year (365 days)

P – Price of gas (Rs.10.71 per scm)

Sample: Annual revenue at 50% penetration

=15*0.5*365*10.71

= Rs.29318.63

Now as shown above we will calculate the annual revenues for the customers as and when the
penetration level increases. For example, at penetration level of 50% we have 15 customers who
give us revenue of Rs. 29318.63. Similarly revenues for each subsequent increase in customers
have been calculated.

The same process has been carried out for proposed process as well. With increase in penetration
level the revenues will increase.

A comparison of current revenue stream with proposed revenue stream has been shown:

Current Plan Stream Proposed Plan Stream

Time Penetration Level Revenues Penetration Level Revenues

(In Rupees) ( In Rupees)

1st Year 50% 29,318.625 50% 29,318.625

2nd Year 60% 35,182.35 80% 46909.8

3rd Year 70% 41,046.08 80% 46909.8

4th Year 80% 46909.8 80% 46909.8

5th Year 80% 46909.8 80% 46909.8

Total 199,366.66 216,957.83

As is visible from the revenue stream, the revenues by proposed process are more than current
process. The significant point to be considered is that the revenues which were coming in 4th year

39
by current process will be available to us in 2nd year by proposed process. Hence the proposed
process increases the revenues from same number of customers.

Therefore now we find the increase in revenues.

40
 Increase in revenues = Proposed revenues – current revenues

Total revenues for 5 years by current plan

= Rs.(29,318.625 + 35,182.35 + 41,046.08 + 46909.8 + 46909.8)

= Rs.199, 366.66

Total revenues for 5 years by proposed plan

= Rs.(29,318.625 + 46909.8 + 46909.8 + 46909.8 + 46909.8)

= Rs.216, 957.83

Increase in revenues =Rs.(216,957.83 – 199,366.66)

= Rs.17,591.17

 MCV Cost Computation

Since by proposed process we will incur extra cost towards installing meter control valves.
Hence, we will find the extra cost towards valves and the opportunity cost for it.

Cost of 1 MCV is Rs.132.00 (including sales tax & octroi)

Additional no of MCV’s to be installed – 9

41
Therefore,

Cost of additional MCV units = 9* Rs.132

= Rs.1188.00

Opportunity cost = 14% ROR on cost for 2 years

= (14*1188*2)/100

= Rs.332.64

42
3.2.2 Project Cost:
After determining the revenues for a period of 5 years, we will now find the labour cost towards
the two processes. This will help us find the savings or difference between the cost incurred by
current and proposed process. This savings will add to the revenues and will give us annual
income.

Following are the assumptions which have been taken to determine the cost of infrastructure.

 Assumptions

 No of Flats Per Building – 30

 Maximum Penetration – 80%
 Potential – 24(80% of 30 Flats)
 Average penetration – 63%(as on 31st May 2008)
 Extrapolating calculations of 50% on higher penetration level
 There is an increase of approximately 10% in conversions each year and peak
penetration level is reached in 4 years
 Cost of various activities*
 Existing SOR for (GI/MCV/Meter/Copper) – Rs.1760.00
 Proposed Cost for new building(GI/MCV/Meter/Copper) – Rs.1412.10
 Cost for GI & MCV – Rs.860.19
 Inside kitchen cost – Rs.552.14
*(As worked out by planning department)

The existing SOR has been used to find the cost incurred towards the infrastructure by current
process. Similarly, cost of laying infrastructure by proposed process has been calculated by
taking the proposed cost. The proposed cost has been formulated by taking into account the
actual cost of infrastructure and contractor profit.

Shown below is the cost incurred by current process and proposed process

43
Level Of Penetration No. of Customers Cost by Current Cost by proposed
Process(INR) process(INR)

50% 15 21181.5 20644. 56 # +8282.1

= 28926.66
63% 19 7789.12 2208.56

70% 21 3894.56 1104.28

80% 24 5841.84 1656.42

Total 24 38,707.02 33885.92

#
Cost for laying GI & Fitting MCV in the kitchen of all potential customer

 Savings from proposed strategy

Savings (laying of infrastructure) = Current - Proposed

= Rs.(38,707.02 - 33885.92)

= Rs.4821.10

 Savings in MCV (1 instead of 2)

There will be savings in valves also as now there will be only one valve
instead of 2, as required in online connection. Therefore we will be saving
the cost of 9 valves, cost of which will be:
= 9*Rs.132

= Rs.1188

 Hence total savings from this strategy will be

44
 Total savings = Rs.(4821.10 + 1188)

= Rs.6009.10

 Total Income = Savings + Revenues – Opportunity Cost

 Thus,
Total Income = Rs.6009.10 + Rs.17591.17 – Rs.332.64

= Rs.23267.63

Thus we will have a total income of Rs. 23267.63 from a building of 30 flats
with maximum penetration level of 80%.

If we project this savings per building on the estimated potential i.e. of

800,000, we will have an income of 336 million INR. This has been
projected on the basis of past trend.

Kindly refer to Appendix III & IV for no of buildings and savings

Also a change is required in the existing marketing processes of

registration and potential estimation.

Kindly refer to Appendix 5.1, 5.2, 5.3 & for the proposed processes.

45
46
 3.3 Conclusions & Recommendations

 Proposed strategy will help us reduce the cost and increase the revenues
The proposed strategy fulfills the objective of the study. The proposed plan has not only
significantly reduced the redundant cost which was being incurred by the organization.
The redundant cost was involved with online connections. The proposed plan has cut the
cost incurred on scaffoldings, ladders, extra labor involved and opportunity cost due to
time delay.

The proposed plan has not only reduced the incurred cost but it has increased the revenues
from same customers. The proposed plan has recovered the revenues which was being
lost due to time consuming processes

 Implementation of this strategy will give us an edge in the future competitive

scenario (after exclusivity)
The proposed plan gives us an edge over our competitors in post exclusivity scenario. The
infrastructure which will get laid will help us improve our revenues as well as increase the
customer base. Increase in customer base will improve the credibility and reach of
organization. This would make competitors job difficult.

 Maximum entrapment of potential at reduced investment

With implementation of this strategy, the customer base which was earlier achieved in 4
would now be achieved in 2 years giving us an opportunity to trap more potential. The
significant aspect of this plan lies in the fact that we are increasing the customer base at
reduced investment. Since we are saving the redundant or recurring costs we are trapping
the same potential at less cost. This reduces our per customer expenditure.

47
 Since regulations have made deposits refundable, therefore from now on tenants can also
be captured. The proposed plan goes in sync with tenants as well. As tenants have high
mobility, we can retain them by means of ready infrastructure at their new place. By
promising them a time frame, we can convert the customer at his new address. This would
help us increase the number of customers as well as revenues. The customer retention
process will also make PNG an attractive option for tenants against LPG.

 Since capital costs can be recovered through network tariff, hence a prudent
investment
The proposed plan is about achieving economies of scale. Thus it requires a sizeable
investment towards the infrastructure. As per PNGRB regulations, the network tariff can
be loaded with all the cost of infrastructure till meter control valve. Hence it gives us a
clean opportunity to recover our investments. Thus we can take the opportunity of
exclusivity period in laying the low pressure and GI network. This would not only
decrease the per customer conversion time but will also improve level of customer
satisfaction along with brand value of organization. As said above the investment will be
recovered through network tariff.

 We should implement the strategy on new buildings where we have not yet taken
the registrations.

 We should implement the strategy on existing gasified buildings with penetration

less than the maximum

48
4.1 Existing Billing Process
The present billing process has evolved from various experiences and the fundamental changes
business has experienced. It has been very rigorously designed so as to remove all possible
problems and their points of origination. Let’s take a look at how the billing for a customer is
done-

 There is a meter in the kitchen of a customer which measures the amount of gas
consumed by a customer. This meter measures gas consumption in units. The unit for
measurement is standard cubic meters.
 The number of units measured by the meter is used for billing purpose. We raise the
invoice on the consumed units against a fixed per unit charge.
 The bills are raised on a bimonthly basis. Every alternate bill is assessed and actual. The
actual bill is on actual consumption i.e. by taking the actual meter reading. The assessed bill
is on assessed value i.e. based on the average consumption of that customer. The assessed
billing system has been implemented because we do not get approximately 50% of the actual
readings.

4.2 Tribulations of Present Billing Process

 Complex process
The existing process is very complex because of the huge customer base. Due to the customer
base we have different billing cycles which again are very complex. The complexity lies with the
operational part. We do not receive almost 50% of actual readings due to which we are not able to
bill the customer on actual. This creates doubt in the mind of consumer about the bills we send.
One more issue which makes the existing process complex is the concept of ‘shelf’. If we do not
receive a customer’s 2 consecutive actual meter readings we put him on ‘shelf’. Once a customer
is put on shelf further bills are stopped. This again creates a discomfort to customers. So we have
to find means by which we can reduce the complexity causing elements in the process.

 Customer problems

49
 Customers face a lot of problems due to our billing process. The problems faced by
customers are all process generated. For example, wrong readings, meter not read and bill
not received. These problems occur because either we get incorrect readings or we don’t
get the readings at all. The problems of delivery come because the bills are given to the
gatekeepers of society and not to the customer. Hence customer may or may not receive
the bills on time. This makes him to deliver his payments late and if so happens a late
payment charge is levied on him. This further irate the customer. Thus we can say that by
sending the bills we are creating problems for us customers as well as for us. Thus if
possible we have to find an alternative for billing. But as specified in PNGRB regulations
we have to send bills to customers. so we have to improve or simplify our billing process
itself.

 MGL problems
One of the major problems at our end is maintenance of customer records in the form of
their billing cycles, average consumption, bills sent or not, etc. All this is a very
cumbersome process. Hence we need to find a solution by which we can simplify the
process and remove redundant and unnecessary elements.

Another major problem is handling of customer care centre. Almost 50% of the customers
visiting customer care through telephone, mail or web have billing issues. We incur a
huge cost towards maintenance of the call centers. We can reduce approx30 to 40% of the
cost directly by eliminating the billing problems.

Thus so far we have identified that the billing process as a whole has some drawbacks
which get reflected in the form of customer dissatisfaction. Thus we have proposed a
solution which could solve the problems associated with the billing process. The solution
which has been proposed has a justification which has been mentioned later in the report.

Now let’s look at the solution and analyze the justifications for it.

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 5.0 Solution
 The model followed till date was of customization. Now there is a need for standardization. What
we mean to say is that till date we are installing individual meters and billing them individually. Thus in
trying to satisfy the demands of individual customer we are creating unnecessary problems for us. Thus
we need to change our modus-operandi. We can do it as mentioned below:

 The solution proposes to put 1 meter in every society and put fixed charges for gas
usage. This means that we will put a fixed charge for gas usage, for cooking only, on
all the customers of a building. We will install only one meter in the society so that
we can analyse the amount of gas being supplied to the society. This will help us
improvise on our calculations as we will compare the amount of gas supplied to
amount of gas which should have been supplied. This will determine our profits or
losses. Depending on the quantity of gas supplied and the consumption pattern
revision in charges have to done. The revision clause has to be mentioned in the
agreement which will be signed between MGL and society.

 The charges will be fixed per customer and hence a fixed amount will be taken from
society. The charges will be fixed on the basis of consumption pattern of the society.

For the above solution there have been some assumptions based on which the calculations for
feasibility of meter and cost benefit analysis have been done. The assumptions have been
mentioned below.

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5.1 Assumptions

 The consumption pattern will remain uniform and average consumption will increase by
5% over the current average. It is justified as the consumption per customer is bound to
increase due to fixed gas usage.

 The parameters used in choosing meter are same as used for network design i.e. pipelines
and their capacity

 Maximum consumption has been taken as 2.5 scmh per customer, which is more than the
gas consumed cumulatively by cooking stove, gas geyser and air conditioner. Thus we
mean to say that, if customer has all the 3 equipments and he uses them simultaneously he
will consume 2.5 scm of gas per hour.

 Minimum consumption has been taken as 0.15 scmh, which is the minimum amount of
gas consumed when small burner of a cooking stove is lighted on sin or minimum flame.
Thus we taken into account the minimum consumption of 1 customer and maximum
consumption of all the customers (or cluster of customers)

 Savings in recoveries, payments and CRM have been based on data of last 1 year

Now let’s understand the methodology which has been used to find the type of meter and
subsequently used for cost benefit analysis.

Methodology has been explained below.

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5.2 Methodology

 The analysis has been done by drawing various scenarios of consumption i.e.by making
different combinations of usage. For example, 100C indicates that 100% of customers use
gas for cooking. A scenario of100C+30G indicate that 100% customers use gas for
cooking and 30% use it for geysers. Similarly scenarios have been drawn by varying
consumptions by cooking stoves, geysers and air conditioners.

 Then we calculated the no of customers which could be measured with each consumption
pattern with respective meters (meters on which number has been found are being
procured by MGL for domestic, industrial and commercial purposes)

 After identifying the meters which could measure the minimum consumption of 1
customer and maximum consumption of a group, we did a Cost benefit analysis for them.
We identified the meters which could measure minimum consumption of 1 customer. 4
meters were identified. Out of these 2 meters were taken which were able to measure the
maximum customers and were economically feasible.

 A monthly charge has been proposed based on the average consumption of customers we
have till date. We have taken an escalation of 5% on the present average gas consumption.
We kept the gas price as constant i.e. the present gas price and calculated the monthly
charge.

 Proposed Monthly Charge – Rs.190.00

(Gas consumption- 0.525 scmd)
(Gas price – Rs. 11.82 per scm)

We conducted the study by the explained methodology on the assumptions mentioned above.

The study suggested that the solution proposed should be implemented as mentioned here.

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5.3 Financial Benefits
 Savings

 By 10 SCMH Meter
= No. of Buildings*Annual Savings Per Year Per Building
= 7223.00* Rs. 2453

= Rs. 1,77,18,019.00

 By 25 SCMH Meter
= No. of Buildings*Annual Savings Per Year Per Building

= 3612* Rs. 12055.00

= Rs. 4,35,44,152.00

 Total Savings
=Savings by 10 & 25 scmh meters + Business Savings (for 5 years)

= Rs. (1,77,18,019.00 + 4,35,44,152.00) + Rs. 5624120.00*5

=Rs. 8,93,82,771.00

Kindly refer to Appendix VI for calculations.

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5.4 Applicability
 Suitable for buildings with potential in the range of 14 to 46 (as suggested by study)

 Two types of meter (10 SCMH and 25 SCMH) have been identified which are
technically, economically and financially feasible
Kindly refer to annexure 5.1, 5.2 & 5.3 for calculations.

 The decision of type of meter depends on the higher probabilistic consumption pattern of
society and equipments they use i.e. no of geysers and air conditioners they intend to
install in present or future. This means that we will have to design the lines and meter on
the basis of maximum consumption of group of customers.

5.5.1 Advantages
 The problems like meter reading not received, bills not received, etc will be removed as
we will not send individual bills to customers. Now we will be sending society bills so
customer will not face any of the above mentioned problems. Moreover problem of
inaccessibility to the meter inside kitchen will be completely removed.

 Since the charges are fixed therefore no need of sending individual bills – Cost Savings.
A cost of approximately Rs. 8.82 per bill is incurred towards a single customer which
will now drastically come down. We incur a cost of approximately Rs. 300, 00,000
towards billing process on the present customer base. If we apply the strategy we will be
saving approximately Rs. 850, 00,000 cumulatively towards meters and billing

 Since bills will now be sent to society and not to individuals the entire problem of billing
gets solved as there will not be any disputes of any kind.

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  Load on call centre will reduce by approximately 35% - Cost Savings
Since we are fixing gas usage charges, customer queries towards billing will reduce which
will give us financial benefits.

 Recoveries will reduce – 35% of recoveries are due to billing problems- increase in
revenues. The annual revenues will increase by approximately 35% because the amount
outstanding due to billing will no longer be there. We considered that 15% amount will be
outstanding if societies default.

Now we justify the reasons for customer acceptability of this proposal. We compared the gas
price offered with the price of other utilities (prepaid or postpaid).

5.5.2 Why customers will accept

 Consumer will accept this option as the price offered is competitive with other utilities in
many ways:
 LPG – Rs. 350.00 per cylinder
 Water – Rs.200.00 approx
 Electricity – Rs. 500.00 approx
 Cable TV – Rs. 300.00 per month
 Telephone – Rs.300.00 per month
 Price offered is less than all the utilities mentioned above
 Convenient for customers as no need to pay individual bills. Since they pay the
bill as part of their society charges, hence billing issues will be resolved.
 No late payment charges as a cumulative payment is made by the society.
 No billing issues will come up as now entire society will be responsible for the
amount and charges are fixed. Since now the bills will be sent in the name of
society not in the name of individual, customer worries about the bill will go
away.

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 5.6 Conclusions

 The strategy should be used in buildings having potential in the range of 14

to 45 so that financial and technical viability remains.
 The strategy will definitely reduce the billing cost and make it simple and
easy.
 The strategy will reduce the outstanding column by 30%
 The strategy will reduce the expense on call centre by approx 25%
 The strategy will reduce the expense for recoveries by approx 40%
 All the parameters cumulatively will give a benefit of Rs. 8.95 million INR.

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 Bibliography
1. Marketing manual of MGL

a. Marketing processes

b. CRM

c. Billing

2 MIS of MGL

3 PNGRB – Gazette

4 PNGRB – Regulations on Network Tariff

5 PNGRB – Regulations on Exclusivity

6 PNGRB – Policy on Pipelines

7 Annual Report – Gujarat Gas Corporation Limited

8 Annual Report – Indraprastha Gas Limited

9 Report on Cost Consultation by Northern Gas Networks

10 Presentations on Gas Distribution Business

11 Internet

1. www.google.com – search engine

2. www.naturalgas.org

3. www.canlii.org

12 Marketing Management by Phillip Kotler

13 Financial Management by Khan & Jain

14 Financial Accounting by Ramchandra

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