Govt announces scheme to incentivise gas companies to expand PNG network
The government unveiled a new incentive scheme to encourage City Gas Distribution (CGD) companies to expand domestic Piped Natural Gas (PNG) connections, effective September 1, 2026.
The scheme rewards CGD entities with an additional, cheaper allocation of domestically produced APM gas for every incremental billed domestic PNG connection they achieve above a fixed threshold for their geographical area.
The stated goal is to convert over 50 lakh existing but unbilled or inactive household connections into active, gas-consuming connections, alongside expanding the network into new areas.
The scheme will roll out in two tranches over a six-month performance period, intended to shorten the payback period on CGD companies' capital investment in laying pipeline infrastructure.
City Gas Distribution and the PNGRB Regulatory Framework
City Gas Distribution (CGD) refers to the network of pipelines that supply natural gas to households (as PNG, for cooking), vehicles (as CNG), and commercial/industrial units within a defined Geographical Area (GA). The sector is regulated by the Petroleum and Natural Gas Regulatory Board (PNGRB), set up under the PNGRB Act, 2006.
Key Details
- PNGRB authorises CGD entities to develop a GA through competitive bidding rounds; as of the most recent rounds, the vast majority of India's districts have been brought under CGD authorisation, targeting near-universal population coverage.
- Once authorised, a CGD entity typically holds exclusivity for laying the network in that GA for a defined period, to recover high upfront capital costs before other entities can compete.
- Major listed CGD players include Indraprastha Gas Limited (Delhi-NCR), Mahanagar Gas Limited (Mumbai), and Gujarat Gas Limited.
The new incentive scheme operates on top of this existing PNGRB-authorised GA structure — it does not change who is authorised to build the network, but changes the economic incentive for authorised CGD companies to actually connect and activate households within their GA.
Administered Price Mechanism (APM) Gas and Its Pricing Formula
APM gas is natural gas produced from the legacy ("nomination") fields of ONGC and Oil India Limited, sold at a government-regulated (administered) price that is deliberately kept below market/import parity to keep CNG and domestic PNG affordable, since these are treated as priority "core sector" uses.
Key Details
- Following the Kirit Parikh Committee (2022) recommendations, APM gas is now priced monthly at 10% of the Indian crude oil basket price, subject to a floor (US$4/mmBtu) and a ceiling (initially US$6.5/mmBtu, rising by US$0.5/mmBtu annually) — replacing the earlier biannual Rangarajan-formula revisions.
- APM gas allocation to CGD entities for the CNG/domestic PNG segment is prioritised over industrial and commercial uses under the government's gas allocation policy, and is now allocated two quarters in advance to give CGDs supply visibility.
- Falling domestic (nomination-field) output over the years has meant CGD companies increasingly rely on costlier imported LNG or market-priced gas to meet demand growth, squeezing their margins — the incentive scheme addresses this by offering extra APM gas as the reward for network expansion.
The scheme's core mechanism is straightforward: CGD companies earn access to more of the cheaper, government-priced APM gas specifically tied to each new billed household connection they add, directly lowering their cost of serving new customers and improving the return on their pipeline capital expenditure.
PNG versus LPG: Two Distinct Household Cooking Fuel Interventions
It is important to distinguish this PNG network-expansion scheme from LPG-focused schemes such as PM Ujjwala Yojana (2016), which subsidises LPG cylinder connections for below-poverty-line households — these are separate fuel delivery systems with different infrastructure, regulators, and subsidy mechanisms.
Key Details
- PNG is supplied continuously through underground pipelines directly to homes, requiring one-time network/connection infrastructure (regulated by PNGRB); LPG is a bottled/cylinder-based fuel distributed via retail dealer networks (regulated separately, under the Ministry of Petroleum and Natural Gas's LPG distribution norms).
- PNG is generally cheaper per unit of energy delivered than subsidised LPG in areas with an active network, but requires the household to already be within a CGD company's pipeline footprint — explaining the government's continued push to expand physical PNG infrastructure coverage.
- The "unbilled connections" problem targeted by this scheme is specific to PNG: households that paid for a pipeline connection but never activated gas consumption, unlike LPG where a cylinder purchase itself constitutes usage.
By targeting the 50-lakh unbilled PNG connection backlog specifically, the scheme addresses a PNG-specific inefficiency — infrastructure that already exists but sits unused — rather than adding new subsidy for LPG cylinders.
- Scheme effective date: September 1, 2026; implemented in two tranches over a six-month performance period.
- Reported additional APM gas incentive: approximately 200 standard cubic metres (SCM) per incremental billed domestic PNG connection above the fixed threshold for a geographical area [Unverified — exact per-connection quantum as reported].
- Target: converting over 50 lakh existing unbilled/inactive PNG connections into active, billed connections.
- Under the Kirit Parikh Committee-linked formula, APM gas is priced at 10% of the Indian crude basket price, with a floor of US$4/mmBtu and an initial ceiling of US$6.5/mmBtu (rising US$0.5/mmBtu annually).
- CGD network expansion in India is regulated by PNGRB under the PNGRB Act, 2006, through competitive bidding for Geographical Areas.