Sun. Jun 20th, 2021

City gas distribution

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#24 CGD Bidding

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CGD bidding is one of the most complex bidding process defined in the country, it is entirely different from normal bidding process where one quotes lower rate to get the bid. Normally, the CGD Regulatory board set several parameters based on which bid is being evaluated. The weighted to infrastructure parameters related to capex or cash outflows is 50% (number of domestic connection & inch km of steel grid) and another 50% is for revenue generation parameters or cash inflows parameters (network tariff and compression charges).

  1. Number of Domestic connection – having 30% weightage
  2. Steel grid inch-km to be laid – having 20% weightage
  3. Network Tariff – having 40% weightage
  4. Compression charges – having 10% weightage

Number of Domestic connections: It is the individual connection provided to the residential section where gas is mainly used for cooking purposes.

Inch-km : It is the product of steel pipe diameter (in inch) and length (in km) which shall be laid for creating the CGD Network.

Network Tariff: It is 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 customers in natural gas in a CGD Network.

Compression Charges: Compression charge means a charge (excluding statutory taxes and levies) in Rs/Kg for online compression of natural gas into compressed natural gas (CNG) for subsequent dispensing to customers in a CNG station.

Normally the regulatory board of natural gas defined the following methodology for bidding:

  1. Lowness of present value of overall network tariff for the usage of proposed CGD network including CNG over the economic life of CGD Project excluding exclusivity period (first 5 years). This has been given a weightage of 40%.
  2. Lowness of present value of compression charges for CNG for dispensing in the CNG station in the CGD network over the post exclusivity period. This has been given a weightage of 10%.
  3. Highness of the present value of the Inch-Km of steel pipeline proposed to be laid in the CGD network during the exclusivity period. This has been given a weightage of 20%.
  4. Highness of the present value of the number of domestic customers proposed to be connected by PNG by the entity during the period of exclusivity. This has been given a weightage of 30%..

Entity with the highest composite shall be declared as successful bidder.

for eg. Let there be 3 entities, A,B & C.

1) Evaluation of Network tariff: Assume that the present value of network tariff of A<B<C. The least present value of Network Tariff Bid shall be given a score of 100%. and the present value of the other network bids shall be given a score relation to the present value of Network Tariff Bid on pro-rata basis as follows:

A1= 100% (present value of the network tariff of A)

B1= 100% (present value of the network tariff of A / present value of the network tariff of B)

C1= 100% (present value of the network tariff of A / present value of the network tariff of C)

2) Compression charge: Assume that the present value of compression charge of A>B>C. The least present value of the Compression charge for CNG Bid (C) shall be given a score of 100%. and the present value of the other compression charge for CNG Bids shall be given a score relation to the present value of Compression charge for CNG Bid on pro-rata basis as follows:

A2= 100% (present value of the Compression charge for CNG Bid C / present value of the Compression charge for CNG Bid A)

B2= 100% (present value of the Compression charge for CNG Bid C / present value of the Compression charge for CNG Bid B)

C2= 100% (present value of the Compression charge for CNG Bid C)

3) Inch-kilometer of steel pipeline: Assume that the present value of the Inch-kilometer of steel pipeline to be laid in 1st 5 years by A<B<C. The highest present value of the Inch-kilometer of steel pipeline bid (C) shall be given a score of 100%. and the present value of the Inch-kilometer of steel pipeline bid shall be given a score relation to the present value of Compression charge for CNG Bid on pro-rata basis as follows:

A3= 100% (present value of the Inch-kilometer of steel pipeline to be laid by C / present value of the Inch-kilometer of steel pipeline to be laid by A)

B3= 100% (present value of the Inch-kilometer of steel pipeline to be laid by C / present value of the Inch-kilometer of steel pipeline to be laid by B)

C3= 100% (present value of the Inch-kilometer of steel pipeline to be laid by C)

4) No. of Domestic customer: Assume that the present value of the PNG Domestic Customer Connected in 5 years by A >B>C. The highest present value of the PNG Domestic Customer Connected in 5 years (A) shall be given a score of 100%. and the present value of the PNG Domestic Customer Connected in 5 years shall be given a score relation to the present value of the PNG Domestic Customer Connected in 5 years on a pro-rata basis as follows:

A4= 100% (present value of the PNG Domestic Customer Connected in 5 years of A)

B4= 100% (present value of the PNG Domestic Customer Connected in 5 years by B / present value of the PNG Domestic Customer Connected in 5 years by A)

C4= 100% (present value of the PNG Domestic Customer Connected in 5 years by C / present value of the PNG Domestic Customer Connected in 5 years by A)

Now, the composite score of all the 3 entities shall be computed by assigning the respective weights assigned to each of the following criteria as follows:

A= 0.4 * A1 + 0.1 * A2 + 0.2 * A3 + 0.3 * A4

B= 0.4 * B1 + 0.1 * B2 + 0.2 * B3 + 0.3 * B4

C= 0.4 * C1 + 0.1 * C2 + 0.2 * C3 + 0.3 * C4

The entity with the highest composite score shall be declared a successful in the bid.

Note: The method of bidding can be modified or changed in accordance with the instruction from the regulatory board.

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