Transcript INTRODUCTION

Gas Regulations
Presented by
Mohit Saraf
Partner
Luthra & Luthra
Law Offices
November 20, 2001
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AGENDA
• INTRODUCTION
• EXISTING LEGAL FRAMEWORK
• EXISTING REGULATORY STRUCTURE & DOMINANT
PLAYERS
• EXISTING POLICY FRAMEWORK: UPSTREAM
• EXISTING POLICY FRAMEWORK: DOWNSTREAM
• MISSING LINKS
• CENTRAL OR STATE GAS ACT?
• GUJARAT GAS ACT
• INTERNATIONAL EXPERIENCE
• INDEPENDENT REGULATORY AUTHORITY
• LNG SHIPPING POLICY
• CONCLUSION
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INTRODUCTION
• Fuel Risk/Disinvestment of Fertilizer Industry
• Natural Gas contributes 23% in energy
consumption globally v/s 7% in India
• Gap can be bridged.
– Exploration of Indian Reserves
– Trans-border Pipeline: Oman, Iran & Bangladesh
– LNG
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EXISTING LEGAL FRAMEWORK
• Indian Petroleum Act, 1934 – Rules for import by Central
Government
• Oilfield (Regulatory & Development) Act, 1948 –
Oilfield and development of mineral & oil resources
• Petroleum and Natural Gas Rules, 1959 – Petroleum
Exploration License and Mining Lease
• Petroleum & Mineral, Pipelines (Acquisition of Right
of User in Land) Act, 1962 – Right of User
• Oil Industry (Development) Act, 1974 – Levy duty of
excise on natural gas
• Petroleum Rules, 1976 – Importation, Transportation and
Handling
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EXISTING REGULATORY STRUCTURE
& DOMINANT PLAYERS
Ministry of Petroleum & Natural Gas
Directorate General of
Hydrocarbon (DGH)
Upstream
Exploration, Conservation
& Development of HC
Gas Linkages
Committee
Allocation of Natural
Gas to various
Industries.
Oil Industry
Development Board
Levies Cess,
Duties on the production
of Natural Gas
UPSTREAM
Exploration & Production
DOWNSTREAM
Gas Marketing & Transportation
- ONGC, Oil India Ltd
- Pvt players
- GAIL
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EXISTING POLICY FRAMEWORK:
UPSTREAM
A. NEW EXPLORATION LICENSING POLICY, 1997-98
• “Level Playing Field”
– All players including Government Companies would compete
on equal terms for production and exploration license
– Natural Gas from new discoveries would fetch market related
prices.
• Model production, sharing contract by MoP & NG
• Infrastructure Status
• Royalty: 10% on-shore & off-shore, 5% Deep Sea
• A certain percentage of production allocated towards cost recovery.
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EXISTING POLICY FRAMEWORK:
UPSTREAM (Contd….)
B.
LNG TERMINALS
–
Open General License (OGL)
–
Foreign Investment Promotion Board (FIPB) approval
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EXISTING POLICY FRAMEWORK:
DOWNSTREAM
•
Transmission charges
– HBJ – postage stamp – Fixed charge & Inflation Indexed.
1% increase for every 10% increase in the consumer price
index, with October, 1997 as the base.
–
•
Non HBJ- IRR 12% on investment.
Gas Linkage Committee
– Inter-ministerial Committee – Petroleum & Natural Gas,
Power, Steel, Agriculture
– Function: Allocation of natural gas to end users.
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MISSING LINKS
•
The present legal framework:
–
does not cater to ensuring “level playing field”.
•
Domestic Natural Gas Pricing V/s Imported Gas Pricing
-
-
75% of the “ref. price” which is based on pre-determined
basket of international fuel oil price (Ceiling & floor level);
expected 2002-03 – 100%
No third party access rights (Common Carrier
Principle)
•
•
•
•
•
a regime providing for an obligation,
to the extent that there is capacity available,
to offer the use of the grid
on non-discriminatory basis
in return for payment.
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MISSING LINKS (Contd...)
• Can a monopolistic transporter be a marketer as well? Can
a monopolistic transporter be an equity investor in LNG
terminals?
– Era of unbundling of vertically integrated utility.
– GAIL transports 92% of Natural Gas : Cross holding
– In time to come, gas required to transport would be more
than the space available in the existing pipeline.
– Electricity Bill, 2000 – No cross holding of Transmission
Companies.
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CENTRAL OR STATE GAS ACT?
Constitutional Position
A.
Seventh Schedule – Union List – Entry 53
Regulation & Development of “Petroleum & Petroleum
Products
B. Seventh Schedule – State List – Entry 25
Gas & Gas works
•
•
•
•
Inter State Pipelines (HBJ) : various Acts, & Regulators,
duplication
Comparison with Electricity Sector – unified Electricity Law,
Central Regulator & State Regulator
Gujarat has enacted its own Gas Act.
Reference to SC under Article 143 of the Indian Constitution
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GUJARAT GAS ACT
•
•
•
•
Regulate the transmission of gas through pipelines in the
state of Gujarat.
Provides for setting up of a regulatory authority to
monitor transmission, distribution and licensing for retail
distribution.
Creation of common carrier transmission facility for gas
available in Cambay and Tapti basin.
Provides for formation of a nodal agency “Gujarat State
Petronet Ltd. (GSPL)” as the sole ‘Operator’ of the gas
network within the state.
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INTERNATIONAL EXPERIENCE
USA
• When US decided to deregulate its gas industry, it went through almost
a decade of intense “re-regulation” in order to establish free market.
• Natural Gas prices kept artificially low by the government, were
artificially raised nearly 800% in an efforts to stimulate domestic
production.
• Increase in prices resulted in
(i) decrease in demand; (ii) addition of capacity
• Reduction in demand led to:
(i) Crash in prices;
(ii) halted upstream investment, development and
exploration
• Only now, after 20 years, the US finally been able to balance supply
and demand.
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INDEPENDENT REGULATORY
AUTHORITY
Likely functions:
– assisting Government of India in policy formulation – International
Telephony
– Issue: Open Access V/s Closed Access V/s Negotiated Access.
– encourage private investment by providing transparent and
investor friendly regulatory framework
– check misuse of monopolistic power especially because this sector
has characteristic of “natural monopoly
– encourage expansion of gas transportation and distribution network
– Ensure reliability of supply at affordable prices to consumers
– promote competition and enhances efficiency
– Facilitate dispute resolution
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SHIPPING
• Draft LNG Policy in place
• Controversy over FOB and CIF issue
• Converting vessels from foreign flag to Indian flag
within one year of introduction of tonnage tax
• Transfer of technology/O&M by Indian crew
within 5 years of registration of vessel.
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CONCLUSION
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•
•
•
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Not like Electricity Bill, 2000
Urgent need for legal framework before the first LNG
consignment
Needs flexible laws
Independent Regulator
TRAI
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