The newly set up Petroleum and Natural Gas Regulatory Board has received over 100 applications from domestic and foreign companies interested in supplying gas to domestic households and vehicles in cities.
While some companies like Reliance Industries Ltd, Indian Oil Corporation and GAIL (India) are planning a pan-Indian presence, companies like British Gas, British Petroleum and the Adani group are focusing on a few key markets.
The government's target is to roll out city gas networks in about 200 cities over the next five years. This would involve an investment of Rs 60,000 crore (at about Rs 300 crore per city).
"There is a lot of interest in the business because the margins are huge," explained PNGRB member B S Negi.
Currently, only about half a million people in the country get gas in their kitchens, which is about 30 per cent cheaper than the traditional cooking fuel -- liquefied petroleum gas (LPG).
The government plans to extend the reach of city gas to 20 million households over the next few years.
Companies, however, will not be entirely free to pick and choose the cities in which they want to operate. Under the draft policy of city gas distribution, companies will have to bid for the right to supply gas in the city.
"The regulator will first study the feasibility of projects for which companies apply. We will then call for competitive bidding for projects in every city to ensure competitiveness and transparency," said Negi.
Currently gas is distributed to retail customers in a handful of cities by companies such as Indraprashtha Gas, Mahanagar Gas and Gujarat Gas. These companies started operations before the regulator was set up.
The petroleum regulator has decided to offer companies five-year marketing exclusivity for city gas projects. For infrastructure for distributing the gas, the exclusivity period will be life-long and competing marketers will have to pay a fee for using it.
"While we do not want to encourage duplicating pipeline infrastructure, we want the first gas marketer in a city to earn its returns and then throw the turf open to competition," Negi said.
The upside for city gas projects primarily comes from the infrastructure set up for the project. "The volumes of gas sold are not huge. However, the infrastructure that is laid for distributing gas attains the status of real property and that is where the upside comes from," said Negi.
Household distribution of gas is usually bundled with sale of compressed natural gas to vehicles besides sale to industrial users.
British Gas, which distributes gas in Mumbai and other cities in Gujarat through its joint venture companies, has also applied to the Foreign Investment Promotion Board to set up three city gas distribution companies in Karnataka, Tamil Nadu and Andhra Pradesh.
Reliance Industries has also applied to set up projects across the country, for which it has signed agreements with GAIL and Indian Oil Corporation.
Reliance Natural Resources Ltd, an Anil Dhirubhai Ambani group company, has also shown interest in city gas distribution projects in Delhi and Mumbai.