Transcript Document
Arrival of Gas: Regulatory Imperatives
The Suppliers Perspective
Mohit Saraf
Partner
Luthra & Luthra Law Offices
14th November 2003.
Key Concerns of a Supplier
Sanctity of contracts - Dhabol
Gas Actually Reaches Consumer
Pipeline – Common Carrier
Principle
Gas remaining competitive under
the present taxation regime
Level Playing Field
Regassified LNG v Natural Gas
Natural Gas Pricing Policy
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Key Concerns of a Supplier (contd.)
Validity of Take or Pay Obligation
under Indian Law
Independence of Regulator
Payment under SPA
Repatriation of Sale Proceeds
Credit Enhancement Mechanisms
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The Regulatory Imperative
Expected Features of Regulation
Regulations need statutory basis
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Certainty, Consistency &
Constitutionality.
Must be Comprehensive
Participatory and Consensual
Processes.
Independent Regulator
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The 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
FDI Policy - LNG under open general license (OGL) - 100%
foreign direct investment is permitted (import regassification,
distribution and marketing)
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The Proposed Regulatory
Framework
Petroleum Regulatory Board Bill 2002
(“Bill”) (as proposed to be amended based on
Standing Committee recommendations )
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Pipeline access- Common Carrier.
Check Anti-Competitive Practices.
No Government role in technical/
administrative matters.
Stringent penalties for tampering with
infrastructure.
Data Bank and Information system.
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The Proposed Regulatory
Framework
Draft Pipeline Policy (“Policy”)
Common Carrier
Obligation to expand capacity if
Regulator feels there is necessity.
Authorization for pipeline.
Interstate pipeline notified entity to
construct – GAIL to build until entity
notified
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General Regulatory Framework
Dispute Settlement Mechanisms
Clause 13, 23, Central Bill Regulator to arbitrate disputes
Significant disincentive for
investment
Parties should have freedom to
include arbitration clauses
S.158 TEA 2003
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General Regulatory Framework
Multiplicity of Regulation and Regulator
Bill does not contain repealing/
overriding provisions.
Need for parent statute to clarify
relationship with existing State and
Central laws.
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Regulatory Framework for Gas
Centre v. State
Need for Central Regulations
Conflicting Entries – Legalistic
Interpretation might not allow Central law.
Presidential Reference pending
Options before Centre in case of negative
opinion
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Prevent proliferation of state laws
Prevent inconsistency in laws
Intra State pipelines.
Constitutional Amendment Article 368 –
Consent of ½ of the States.
Common Law under Article 252 – Consent
of the concerned State legislatures
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Gas Regulation
Independence of the Regulator
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Bill proposes that Selection Committee to
select members of Regulatory Board
from persons of eminence in petroleum
industry, management, finance, law,
administration and consumer affairs.
To ensure that all suitable persons are
screened the Selection Committee itself
should contain at least one or two
members outside of government officers.
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Pipeline Policy
Laying pipelines
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Policy mentions regulator as authorising
agency – Same not mentioned in bill – no
statutory basis
Policy states that Inter-State pipelines/ High
Pressure Gas Pipelines should be built by
most cost effective entity – Incumbent should
not be unduly favoured
Cross holding between transmission and
distribution entities should not be permitted.
Both Bill and policy silent – so de facto
permission. Electricity bill prohibits.
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Pipeline Policy
Declaration of common carriers
Access to associated infrastructure
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Every Pipeline (Policy) v. Regulators Decision
(Bill) ? Inconsistency
Guidelines in bill - competition, duplication,
wastage. maintaining & increasing supplies,
equitable distribution
Bill does not extend common carrier principle
to associated infrastructure
Principles Utility diminished.
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Pipeline Policy
Tariff
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Regulator to fix upper limit – rate of return
approach.
Clarity required in policy on whether tariff
should be distance based or postage stamp
type.
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Conclusion
• Both Pipeline Policy and Petroleum
Regulatory Bill 2002 are forward
looking initiatives
• Conflicting interests of various
players:
Independence of Regulators is
essential
•Participatory and consensual process
•Important that the Statutory
Framework is put in place before the
first consignment of LNG reaches
India early next year
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