Industrial buyers switch fuels on a trial, not a tariff

Industrial customers are the most valuable users a city gas network can have. A single mid-sized foundry can consume as much gas as 8,000 households, every working day, through one connection that costs a fraction of 8,000 kitchen installations. That is why most city gas companies chase industrial clusters with a familiar tool: a discount against the fuel the factory already burns. In my experience the discount is the least persuasive thing we can offer, and sometimes it does harm.

I learnt the reasons from the other side of the table. Before I joined the city gas business I spent nearly five years marketing bulk LPG to factories and hotels in and around Mumbai. Our customers had been surprised by price revisions so often that they treated every quotation as a provisional opening. They bought, but they did not trust, and the first rival with a lower number took them away. When I began sending a month's notice of each change, with its reasons, the complaints did not stop. The churn slowed.

The discount nobody believed

Our steel line reached the industrial estates around Belagavi in 2022. About 180 foundries and machine shops work there, firing ladle preheaters, heat-treatment furnaces and core ovens on furnace oil, light diesel oil or LPG. Our first offer was a price below the delivered cost of LPG. In a year, nine units converted. Two owners later admitted they had taken our quotation to their LPG supplier only to negotiate a better LPG price.

When I took over industrial business development in April 2023, I spent my first month in foundry offices rather than our own. The owners were not sceptical about natural gas; several had seen it work in other states. They were sceptical about us. A discount against LPG told them that our price would follow a fuel we did not sell or control, and that we could revise it whenever we chose. A promise of reliable supply told them nothing, because each of them knew that households and vehicles come first. And no discount touched the real barrier, which was the cost of converting burners: between ₹8 lakh and ₹40 lakh a unit, before anyone knew whether castings would come out as well on gas as on oil.

A formula the customer can check

We rebuilt the offer around three things a foundry owner could verify. The first was price. We replaced the discount with a two-part formula: our weighted cost of gas, with its components shown, plus a fixed margin per standard cubic metre, reset quarterly with thirty days' notice. The owner could see what moved the price and could test each quarter's change against the reasons we gave. Our commercial head worried, with some justice, that we were surrendering the ability to price to the market. We were. That was the point.

The second was the furnace itself. We funded a trial on one furnace per unit, up to ₹6 lakh, with a combustion engineering partner, and measured fuel cost per tonne of good castings before and after. Owners do not buy heat. They buy castings that pass inspection, and a trial that showed steadier temperatures in a heat-treatment furnace persuaded more of them than any price we quoted.

The third was the contract. Our finance team wanted take-or-pay at 85 per cent of contracted quantity from the first month. We set it at 60 per cent in the first year, rising to 80, because a unit learning to run its cycles on gas will draw less than it planned. That moved risk onto us, and our chief financial officer was right to say so plainly in the board paper.

We also stopped judging the industrial team on signed contracts alone. Since 2024 a salesperson's incentive depends on gas actually drawn in the customer's first year against the quantity contracted, which discourages signing a foundry for a volume its furnaces cannot use. It slowed the count of contracts for two quarters and made the forecasts our procurement team relies on far more accurate.

By March 2026, 97 units had run trials and 62 had signed, bringing the cluster to 71 converted units and its demand from 21,000 to 1,38,000 standard cubic metres a day. Not every result was comfortable. When imported gas costs rose in early 2025, the formula passed the rise through exactly as written, and two units went back to LPG for a quarter. They returned because the formula had done what it said, and because their trial data still favoured gas.

Saying plainly who is supplied first

The hardest conversation in industrial gas sales is about priority. In India, piped gas for households and CNG for transport are treated as priority uses, and when supply is constrained a distributor protects homes and vehicles first. Industrial contracts are written accordingly. Most companies place this in a clause and hope it is never tested.

Ours was tested in September 2024, when upstream maintenance forced us to curtail industrial supply for thirty hours. Our contracts allowed it and we gave notice. Six owners still felt misled, because the clause had been signed but never explained. Since then our engineers explain curtailment priority in person at signing, with the history of every interruption we have had and how long each lasted. Each industrial customer also receives a quarterly letter showing the price components, the next reset and any planned maintenance on the networks that supply us.

All of this has costs. A transparent formula invites argument every quarter. Funded trials spend money on units that never convert; 35 of our 97 did not. A lower take-or-pay commitment makes our volumes less predictable for lenders and for our own gas procurement. And a competitor with a sharper discount can still win a customer who cares only about this month's price.

But most industrial buyers are not looking for the cheapest fuel this month. They are looking for a fuel around which they can plan a year of production. A city gas company that wants to serve them has to be checkable: in its price, in its effect on their product and in its account of what happens when gas runs short. Discounts start conversations. Evidence closes them.