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Reference Date | Version |
October 16, 2024 | 1.0 |
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Keywords |
PNGRB, captive pipelines, authorization, dedicated pipeline, common carrier, contract carrier |
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Legislation(s)/Policies |
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Jurisdiction |
India |
Aspects related to the laying, building, operating and expanding of Petroleum and Petroleum Products Pipelines require expertise and assistance from an oil, gas and energy law firm or legal advisor.
Introduction
The Petroleum and Natural Gas Regulatory Board Act, 2006 (‘PNGRB Act’) regulates refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas. Under the PNGRB Act, the Petroleum and Natural Gas Regulatory Board (‘Board’), shall:
“(i) authorize entities to-
- lay, build, operate or expand a common carrier or contract carrier;
- lay, build, operate or expand city or local natural gas distribution network;
(ii) declare pipelines as common carrier or contract carrier;
(iii) regulate, by regulations-
- access to common carrier or contract carrier so as to ensure fair trade and competition amongst entities and for that purpose specify pipeline access code;
- transportation rates for common carrier or contract carrier;
…”
While the PNGRB Act remains silent on the issue of pipelines developed for self use by customers i.e., captive pipelines, the Board has, time and again, sought to exercise its jurisdiction with respect to laying, operating and expansion of such pipelines.
This article presents an analysis of the cases IMC Limited v. Union of India and Ors. and Indian Oil Corporation Limited v. Petroleum and Natural Gas Regulatory Board where the Delhi High Court has examined whether or not entities can lay a captive pipeline for transport of its petroleum and petroleum products without the authorization of the Board.
Background
IMC Limited (‘Petitioner’) and Indian Oil Corporation Limited (‘IOCL’), in response to an application-cum-bid document for a grant of authorisation for laying, building, operating or expanding a pipeline, sought authorization from the Board to lay down the pipeline. Pursuant to this, the Petitioner was issued the letter of authorization on December 18, 2015, to lay down the pipeline 21 kilometers from a point within the Ennore Port to Manali Industrial Area.
The Petitioner contended that in October 2023, IOCL started laying down two multi-product petroleum and petroleum products pipelines from KPL Jetty to Vellur Terminal (operated by IOCL) and three pipelines from Vellur Terminal to Manali Industrial Area, without obtaining any authorisation from the Board. The Board, vide a communication dated December 13, 2023, directed IOCL to stop laying those pipelines.
It was the contention of IOCL that regulating the laying down of pipelines which are meant for captive use and for transportation of the products of IOCL from the jetty to its terminal is outside the purview of the PNGRB Act, and accordingly not within the jurisdiction of the Board, and therefore, the communication dated December 13, 2023 was liable to be set aside.
The Court examined the provisions of the PNGRB Act and the regulations thereunder to decide whether or not the Board has the power to regulate pipelines which are laid/intended to be laid by an entity for transporting its own petroleum and petroleum products, which are also sometimes referred as captive pipelines, in common parlance.
Arguments Advanced
Petitioner
The Petitioner submitted that the Ministry of Petroleum and Natural Gas of the Government of India brought out Guidelines for Laying Petroleum Products Pipelines (‘2002 Guidelines’) categorising petroleum products pipelines in three compartments:
(i) pipelines originating from refineries, whether coastal or inland upto a distance of 300 kms. from the refinery;
(ii) pipelines dedicated for supplying product to a particular consumer, originating either from a refinery or from company’s terminal; and
(iii) pipelines originating from refineries exceeding 300 kms. in length and pipelines originating from ports, other than those specified in (i) and (ii) above.
The 2002 Guidelines stipulate that,
“6.1 These guidelines will remain in force till the Petroleum Regulatory Board is constituted.
6.2 After Petroleum Regulatory Board is constituted, the RoU in land for laying petroleum product pipelines will be granted by the Ministry of Petroleum & Natural Gas, subject to fulfillment of requirements under the petroleum regulatory law.”
The Petitioner, by relying on the above provisions, argued that once the Board was constituted, the 2002 Guidelines do not survive and the Board, by being the regulator, will have the final say in all matters that are covered under the PNGRB Act and right of user of land under the Petroleum Pipelines (Acquisition of Right of User in Land) Act, 1962_can be given only to a person who gets the authorization from the Board.
The Petitioner argued that the concept of captive pipeline cannot continue after enactment of the PNGRB Act and captive self use pipeline has been done away with. Reliance was placed on Section 20 (Declaring, laying, building, etc., of common carrier or contract carrier and city or local natural gas distribution network) of the PNGRB Act, to assert that only common carrier and contract carrier pipelines can be laid down by entities for transportation of petroleum and petroleum products and even the existing pipelines which were captive pipelines can be converted to a common/contract carrier in a manner as has been provided for in Section 20 of the PNGRB Act. The Petitioner contended that the very object of the PNGRB Act is to bring in common carrier and contract carrier for the purpose of increasing competition and it would fail if captive pipelines are permitted to be laid down.
The Board
The Board stated that under the regulatory scheme, the Directorate General of Hydrocarbons is responsible to oversee the upstream sector, while an independent regulator, i.e., the Board, has been established and made responsible to oversee the mid-stream and downstream activities related to petroleum, petroleum products and natural gas.
It was further stated that the purport of the scheme of the PNGRB Act is that no entity will create a pipeline infrastructure only for its transport and it has to keep an additional capacity of at least 25% of sum of
a) capacity requirements of the entity; and
b) firmed-up contracted capacity with other entities for use by others on a non-discriminatory open access basis (common carrier) or for others on firm contracts basis (contract carrier).
It was submitted that under the PNGRB Act there are no ‘captive pipelines’ for transportation of petroleum and petroleum products. It was contended that the PNGRB Act or the Regulations do not even mention the term ‘captive pipelines’, which shows clear intention not to recognize the very concept.
The Board contended that, “the concept of captive pipelines is a dying concept and slowly and slowly the Board is taking steps to convert existing pipelines into contract carrier, as can be noticed by the Board bringing out the Petroleum and Natural Gas Regulatory Board (Guiding Principles for Declaring or Authorising Petroleum and Petrol Products Pipelines as Common Carrier or Contract Carrier) Regulations, 2012 (‘2012 Regulations’)”.
IOCL
IOCL contended that there is nothing in the PNGRB Act which prohibits laying down of pipelines where one entity transports its own goods and the very definition of common carrier shows that these pipelines are for transportation of petroleum and petroleum products and natural gas by more than one entity.
IOCL argued that purport of the PNGRB Act is to regulate those pipelines which are being used by more than one entity and, therefore, the Board cannot regulate pipelines which are specifically laid by an entity for transporting its own goods. It was further stated that even the definition of ‘contract carrier’ shows that contract carrier are those pipelines for transportation of petroleum and petroleum products by more than one entity pursuant to contracts entered into for at least one year as may be declared authorized by the Board from time to time under Section 20(3) of the PNGRB Act.
Further, the fact that the Board can exercise its powers under Section 20 and Section 21 (Right of first use) of the PNGRB Act and follow a procedure by declaring existing pipelines as a common carrier itself postulates that there is no prohibition in laying down pipeline for transportation of (its) goods and the Board can in exercise of its jurisdiction under Section 20 of the PNGRB Act decide to declare a pipeline as a common carrier by following the procedure laid down under Section 20 of the PNGRB Act.
Union of India (‘Union’)
The Union submitted that the framework for laying down the pipeline under the PNGRB Act governs or applies only to those pipelines that impact the consumers.The Union contended that when an entity wants to transport its own goods by laying down its own pipeline, then there is no impact on the consumer.
It was stated by the Union that Section 2 read with Section 11 (Functions of the Board) & Section 16 (Authorisation) of the PNGRB Act specifically limits the authorizing power of the Board to only two types of pipelines, namely:-
(i) common carrier, and
(ii) contract carrier.
and that the Parliament has only mentioned these two types of pipelines for transporting petroleum and petroleum products as being within the purview of the Board. It is stated that even during discussions on the Bill, the Group of Ministers had recommended retaining the provision of ‘authorization’ only for the laying of a ‘common carrier’ and a ‘contract carrier’ pipelines (and city or local gas distribution network pipelines).
The Union further argued that as per Regulation 19 (Provisions relating to dedicated pipelines for transport of petroleum products) of the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand Petroleum and Petroleum Products Pipelines) Regulations, 2010 (‘Authorizing Regulations’), an entity can lay a ‘dedicated’ pipeline even against the advice of the Board and if the entity goes against the advice of the Board, it cannot request for conversion of its pipeline to a common carrier for a period of 5 years. Therefore, the scheme of the PNGRB Act unmistakably points to the conclusion that the Board has no power to authorise pipelines for petroleum and petroleum products which do not qualify as a ‘common carrier’ or a ‘contract carrier’ and, therefore, the laying of ‘captive’ pipelines also fall outside the purview of the Board.
Judgement
The Court did not accept the submission of the Petitioner and the Board. The Court ruled:
“Had the intention of the Legislature been that PNGRB was to be the sole Regulator of all the pipelines, it would have said so in so many words. Neither the Statement of Object and Reason nor the Preamble lead to such interpretation that the purpose was to exclude/prohibit use of any captive pipeline.”
The Court held that the reliance placed on 2012 Regulation to support the contention that the Board was taking steps to convert existing pipelines into contract carrier is misplaced as the regulations cannot have a wider ambit than the statute, and the extent of power delegated to an authority can be gauged only from the statute and not from the regulations.
The Court noted that the fact that the PNGRB Act revolved around ‘contract carrier’ and ‘common carrier’, shows that the Legislature intended to ensure that such carriers do not abuse their monopolistic position by obtaining undue benefits from other entities which can impact the consumers in a detrimental manner.
The purpose of giving the Board control only over ‘contract carrier’ and ‘common carrier’ is to ensure that ultimately the consumer is not affected by such carriers which have been authorized by the Board to lay down pipelines. Further, the Board has the power to declare an existing pipeline for transportation of petroleum and petroleum products as a common carrier/contract carrier for which procedure has been laid down under Section 20 of the PNGRB Act indicates permissibility of laying down ‘captive pipelines’.
There is no explicit bar to laying of captive pipelines provided anywhere in the PNGRB Act. The Court opined that a conjoint reading of the definition of ‘common carrier’ and ‘contract carrier’ along with Section 16 of the PNGRB Act makes the intention of the legislature crystal clear. The Legislature has clearly taken an effort to specifically include the concept of ‘more than one entity’ as a user base for pipelines defined as common carrier or contract carrier. Section 16 of the PNGRB Act, only requires entities to obtain authorisation from the Board if they wish to lay a ‘common carrier’ or a ‘contract carrier’.
The Court rejected the contention that no entity can lay a pipeline without authorization of the Board. The Court further observed that the Board can exercise its jurisdiction under Section 20 of the PNGRB Act and convert the ‘captive pipeline’ to a ‘common carrier’ or if the Board is of the opinion that there are enough entities for whose purpose a pipeline is required to be laid down, it will follow the Authorizing Regulations calling for expression of interest for laying down its own pipelines.
The Court, based on the written submissions of the Union, observed:
“The Union of India in its written submissions has enumerated list of several captive pipelines which have been laid down after the enactment of the PNGRB Act without getting authorization from the Board
…
The Union of India has also given several examples where captive and common/contract carrier pipelines have been laid side by side and running parallel for a significant length to same locations from the beginning to the end after the PNGRB Act has come into force. Though all these are not relevant for interpreting the PNGRB Act but it does substantiate that the contention of Union of India that the concept of captive pipelines has not been given a complete go-by after the enactment of the PNGRB Act is correct.”
The Court held that there is no authorization required by IOCL from the Board for laying down a pipeline for transporting its petroleum and petroleum products from its own jetty to the terminal before dismissing the petition filed by IMC Limited and setting aside the communication dated December 13, 2023 issued by the Board to IOCL.
View point
The scope and extent of the Board’s power regarding ‘captive pipelines’ have been debated since the enactment of the PNGRB Act.
A careful study of the provisions of the PNGRB Act leads to an inescapable conclusion that the language of the PNGRB Act does not extend to grant of authorisation by PNGRB in respect of laying, operating and expansion of ‘captive pipelines’. Why, then, are stakeholders making desperate attempts to read something into the statute? The answer is also quite apparent – ‘business interest and competitive edge’. The issue of ‘business interest and competitive edge’ are central. Depending on which side of the table one is (the one who seeks to lay a captive pipeline or one whose business may get affected on account of laying of the captive pipeline), the perspective would vary and consequently, the logic to assert or refute the case of ‘captive pipelines’.
The issue of monopolistic or anti-competitive behaviour in the guise of protecting business interests is real—but within the scope of the Competition Commission, not the PNGRB. PNGRB itself could be viewed as an interested party in respect of determining the extent of its powers.
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Associate at Alaya Legal
