Marketing Strategies For Piped Natural Gas

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

Registration and Connection Charges (inRs.) To

PreRegn.

Reg n

Connection

Total

1

Pilot (IRS)*

08/05/1995 End of 1995

5500

2

IRS

End of 1995

31/05/1999

2000

4000

6000

3

Installment (24 months)

End of 1995

31/05/1999

2000

5280

7280

Installment End of (36months) 1995

31/05/1999

(Rs. 220 x 24) 2000

5940

7940

(Rs. 165 x 36)

4

IRS

01/06/1999 30/09/2000

5

IRS

01/10/2000 29/01/2004

BRS# IRS

6

5500

3000

5000

8000

500

2000

4000

6500

01/10/2000 29/01/2004

500

2000

2500

5000

30/01/2004

500

2000

2500

5000

Till date

*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, preoperative 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 subclause 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, consideringi) 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 Exclusivitya) 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 expansions required through pipeline capacity building and CNG infrastructure as well as carry out

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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

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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

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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.

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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.

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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.

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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 (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

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

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Level Of Penetration

No. of Customers

Cost by Current Process(INR)

Cost by proposed process(INR)

50%

15

21181.5

63%

19

7789.12

20644. 56 # +8282.1 = 28926.66 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.

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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

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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.

51

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.

52

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.

54

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 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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