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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-Regn.

Regn

Connection Total

1 Pilot (IRS)*

08/05/1995 End of 1995 5500 5500

2 IRS End of 1995

31/05/1999 2000 4000 6000

3 Installment (24 months)

End of 1995

31/05/1999 2000 5280

(Rs. 220 x 24)

7280

Installment (36months)

End of 1995

31/05/1999 2000 5940

(Rs. 165 x 36)

7940

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 D epartmental 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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1.4.3Ex clusivity

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

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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

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expansions required through pipeline capacity building and CNG infrastructure as well as carry out

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.

22

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

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

23

meters of the metering unit at the consumer’s end till the tap-off in the

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)

D – No of days in a year (365 days)

P – Price of gas (Rs.10.71 per scm)

38

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.

Current Plan Stream Proposed Plan Stream

Time Penetration Level Revenues(In Rupees)

Penetration Level Revenues( 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

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

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 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.

39

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

40

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

41

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

42

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

Cost by proposed 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

Total savings = Rs.(4821.10 + 1188)

43

= 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.

44

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.

45

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

46

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

47

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.

48

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.

For more Notes, Presentations, Project Reports visit a2zmba.blogspot.com

hrmba.blogspot.com

mbafin.blogspot.com

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Bibliography

1. Marketing manual of MGLa. Marketing processesb. CRMc. 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 engine2. 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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