Hong Kong and China Gas' (Towngas) plan to build an extensive distribution network in eastern China has gained momentum, with talks on investing in two local companies advancing. After meeting with Towngas management recently, Lehman Brothers analyst Angello Chan said the company was negotiating with Wuxi Gas and Changzhou Gas in Jiangsu on forming joint ventures. The potential deals will help lay the utility's foundations in Jiangsu and Zhejiang provinces, the destination of the 120 billion yuan (about HK$113.2 billion) west-to-east natural gas transmission project. They also fit Towngas plans to grab a slice of the gas transmission project. Towngas, which supplies naphtha-based pipe gas in Hong Kong, hopes to replicate its business model in eastern China as the main thrust of its mainland expansion plan. Mr Chan said investment in each of the projects would be less than US$30 million, to avoid seeking Beijing's approval. Wuxi Gas and Changzhou Gas were about 200 kilometres northeast of Shanghai, he said, at a strategic geographical point for Towngas' plan to enter the Shanghai market. 'The Jiangsu-Shanghai expansion strategy again shows that [Towngas] is targeting the acquisition of neighbouring distribution networks with a view to expanding and integrating them in the future, similar to its strategy in Guangdong,' Mr Chan said. Towngas managing director Alfred Chan Wing-kin declined to comment yesterday on which cities the company's investments would focus on and the progress of the talks. However, he said Towngas was keen to form equity joint ventures with local gas distributors in densely populated and industrialised cities in Jiangsu and Zhejiang. He said the utility sought to take a management lead so it could bring in its experience in gas transmission, technology and customer services. The strategies were demonstrated in September with Towngas' purchase of a 45 per cent stake in a Suzhou industrial park, in which the utility took charge of management. Mr Chan said a well-established network in the eastern region would facilitate the abundant supply of natural gas through the west-to-east gas pipeline project. Towngas is seeking a role in the project by joining a consortium composed of Royal Dutch/Shell and Russian gas firms Gazprom and Strolitransgaz. A second bidding consortium consists of Exxon Mobil and power utility CLP Holdings. 'We expect bidding results to be announced by the end of next month,' Mr Chan said. The project, commissioned by PetroChina, will involve the construction of a 4,200 km pipeline which will transmit natural gas from Xinjiang to Shanghai. Construction is scheduled to start this year and be completed in 2004. A PetroChina spokesman yesterday said it was uncertain if bidders Petronas of Malaysia and Nissho Iwai of Japan would remain in the battle after key member BP pulled out in September.