ICRA Ratings has said that the time extension given to City Gas Distribution (CGD) players on November 5, by the Petroleum and Natural Gas Regulatory Board (PNGRB) is only for a limited time period and thus will provide only a temporary breather. At the same time, it will ensure that players are not complacent and make every effort to create the committed infrastructure at the earliest. The PNGRB has issued an order granting more time to 41 CGD players setting up projects in 185 Geographical Areas (GAs) to complete their network rollout commitment. A large number of these 185 GAs had received authorization in the Bid Rounds 9 and 10. The time granted varies from 129 days to 251 days across different GAs depending on the duration of the COVID-19 lockdown. The PNGRB has considered 69 days as the centrally imposed lockdown period and 60 days as the restoration period.
According to Ankit Patel, Vice-President and Co Head, Corporate Ratings, ICRA, “The extensions permitted by PNGRB are in line with the previous September 2020 guidelines that stated that the relative obligation of the entity affected by Force Majeure (FM) events shall be suspended for the period during which such FM lasts. While a majority of the 185 entities have received the basic extension of 129 days only, 38 entities have received extensions ranging from 136-251 days. This is largely at locations that had longer state-enforced lockdowns. The industry expected a higher extension period – as high as 2 years in some cases since the operational difficulties in terms of availability of labor and equipment continued even after the discontinuation of lockdowns.”
The PNGRB, in its September 2, 2020 set of guidelines had outlined the considerations to examine the requests of CGD players for a time extension on account of FM events. The guidelines listed events such as war, riots, natural disasters, and restrictions by the Central or State governments as conditions that qualify under FM and can result in time extension to complete Minimum Work Programme (MWP) obligations. Several city gas firms had claimed FM after work on sites got stalled due to the lockdowns.
The difficulties for CGD players associated with re-mobilization and availability of equipment, labor, and other resources to resume project execution are covered under the relief provided as restoration period. Under the present CGD regulations of PNGRB, CGD players have MWP obligations for each year in terms of the length of pipelines, the number of CNG stations and the number of domestic connections to be completed during each of their initial years after receiving exclusive authorization to market gas in each specified area also referred to as a GA which generally consists of 1-3 districts. If there is a delay in execution, CGD regulations permit the imposition of penalties on the entities setting up the projects.
According to Mr. K. Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA, “Given the strict penalties that can be imposed on players for the delay in executing the MWP under the new CGD regulations, ICRA believes that the timely and clear communication from the regulator regarding the FM claims of CGD players is positive, as this will ensure that players are not complacent and make every effort to create the committed infrastructure at the earliest. The PNGRB’s intent is also reflected in the selective approach while granting an extension on the basis of the actual impact of lockdowns, instead of blanket extensions.”
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