Mandatory switch to PNG for Delhi industries credit positive for CGDs: ICRA

As per the ICRA, the directive to compulsorily switch to PNG in the NCR region is a positive development for CGD companies, both from an immediate as well long-term perspective.

New Delhi: The Centre's new directive for industrial units in Delhi to switch over to PNG (piped natural gas) owing to the high levels of pollution is a positive development for city gas distribution (CGD) companies, ICRA said in a note.

Accordingly, the Ministry of Environment, Forests and Climate Change on December 22, identified about 1,644 industrial units spread across 50 industrial areas in Delhi to switch over to PNG owing to the high levels of pollution.

In addition, Delhi Pollution Control Committee (DPCC) was also directed to inspect and identify the industries using unapproved fuels and to take stringent penal action in case of non-compliance.

Besides DPCC, Indraprastha Gas and Delhi government were also asked to work in close coordination with the industrial units so as to target the completion of infrastructure work and switch over to PNG by January 31, 2021.

As per the ICRA note, this directive to compulsorily switch to PNG in the NCR region is a positive development for CGD companies, both from an immediate as well long-term perspective.

"The directive by the ministry would provide a boost to the industrial volumes of incumbent IGL," said Prashant Vasisht, Vice-President and Co-Head, Corporate Ratings, ICRA.

"This would also necessitate an accelerated expansion of network in the industrial clusters. Additionally, with several cities in northern India featuring among the top 20 most polluted cities globally, such as Jodhpur, Jind, Gurugram, Agra, Ghaziabad, Lucknow and Varanasi, other state pollution control boards may follow suit which would benefit the incumbent CGD entities in these cities."

"Accordingly the move by the ministry accelerates the trend of switch to cleaner industrial fuels which began with the ban on use of pet-coke and furnace oil in October 2017 and is only expected to gather pace going forward considering the persistent high levels of pollution across northern India."

However, the current high spot gas prices may lead to some resistance from the industrial consumers relying on cheaper alternate fuels, the note said.

The Asian spot prices of LNG had declined below $2 per mmbtu in May 2020, owing to demand destruction due to outbreak of coronavirus amid increasing global supplies.

In recent weeks, spot LNG prices have increased to nearly $10-11 per mmbtu due to increase in oil prices, supply issues in Australia and Malaysia, a colder than expected winter and delays in the Panama Canal.

Nevertheless, ICRA expected the supply overhang amid demand inflicted by Covid-19 to keep prices muted over the longer term.

(IANS)