The Oil & Gas: Ezine April 2017

Petroleum and Natural Gas Regulatory Board has amended regulations 4 and 5 of the Petroleum and Natural Gas Regulatory Board (Determination of Petroleum and Petroleum Products Pipeline Transportation Tariff) Regulations, 2010
December, 2016

Petroleum and Natural Gas Regulatory Board  (PNGRB) under Section 61 of the Petroleum and Natural Gas Regulatory Board Act, 2006 has amended Regulations 4 and 5 of the Petroleum and Natural Gas Regulatory Board (Determination of Petroleum and Petroleum Products Pipeline Transportation Tariff) Regulations, 2010 with effect from December 20, 2016.

In regulation 4, after the third proviso, a new proviso has been introduced, which states that the transitional period may be further extended for another one year or lesser period as the PNGRB may decide, after the completion of the extended transition period of two years.

In regulation 5, after the second proviso, a new proviso has been added which states that the determination of the petroleum and petroleum product pipeline transportation tariff shall be benchmarked against the goods tariff table of the railways as applicable on the date of the coming into force of the Petroleum and Natural Gas Regulatory Board (Determination of Petroleum and Petroleum Products Pipeline Transportation Tariff) Amendment Regulations, 2016 and if the goods tariff table of the railways is revised during the further extended period of transition, the Board may consider the benchmarking of the petroleum and petroleum products transportation tariff against such revision.

Mangalore Mineral Private Limited (MMPL) as ‘Complainant’ v Mahesh Resources Private Limited & Ors (MRPL), as ‘Respondent’:  Case No. Legal/201/2016

Mangalore Mineral Private Limited (Complainant) had filed a complaint against Mahesh Resources Private Limited & Ors. (Respondent) under Section 25 read with Sections 2(1(zi), 11(a), 12(1(b)(iv), 12(2) and 13(1)(g) of the Petroleum and Natural Gas Regulatory Board Act, 2006  in relation to alleged restrictive trade practices adopted by MRPL against MMPL.

As per the Complainant, the Respondent abused its natural monopoly vested with it pursuant to CGD authorisation granted to it by seeking finance for laying the CGD network and by collecting illegal and exorbitant amounts as security deposit from consumers including Complainant.

AS per PNGRB “No regulatory provision permits the authorised entity to raise demand from any consumer as interest free security for laying the pipeline”. On complete consideration of the matter, PNGRB held that the Complainant is not obliged to bear the cost of laying the pipeline to procure gas for its plant as the network has to be developed by the authorised entity i.e., MRPL.

Relevant Provisions:

1. Section 61 (2)(t) [subject to Section 22], and
2. Sections 11(e)(ii) and 11(f)(iii) and (vi) read with Section 2(zn) of the Petroleum and Natural Gas Regulatory Board Act, 2006 (Act)

Parameters:
i. Section 61 contains the powers of the PNGRB. Section 61(2)(t) enables PNGRB to frame regulations with respect to transportation tariffs for ‘common carriers’ or ‘contract carriers’ or ‘city or local natural gas distribution network’ and the manner of determining such tariffs under Section 22(1). Such regulations are required to be consistent with the Act. Section 61(2)(t) is controlled by Section 22(1), which is further guided by principles stated under Section 22(2), which are as below :

1. factors encouraging competition, efficiency, economic use of the resources, good performance and optimum investments;
2. safeguarding the consumer interest and at the same time recovery of cost of transportation in a reasonable manner;
3. the principles rewarding efficiency in performance;
4. the connected infrastructure such as compressors, pumps, metering units, storage and the like connected to the common carriers or contract carriers;
5. benchmarking against a reference tariff calculated based on cost of service, internal rate of return, net present value or alternate mode of transport;
6. policy of the Central Government applicable to common carrier, contract carrier and city or local distribution natural gas network.

Section 22(1) is mandatory in nature and requires the PNGRB to lay down, subject to other provisions of the Act, by regulations, the transportation tariffs for common carriers or contract carriers or city or local natural gas distribution network, and the manner of determining such tariffs. The language of Section 22(1) requires the PNGRB;

• to make the regulations subject to the other provisions of the Act, and
• to only fix the transportation tariff and the manner of determining such tariffs vis-a-vis common carriers, contract carriers or city or local natural gas distribution network.

This provision does not contemplate tariff fixation with respect to consumers.

Regulations made by PNGRB under Section 22 (1), are required to be subject to other relevant provisions of the Act, which in the present case are Sections 11(e)(ii) and 11(f)(iii) and (vi) read with Section 2(zn).

ii. Section 11 contains the functions of the PNGRB. The language is mandatory in nature and requires PNGRB amongst other matters, to;

• regulate, by regulations, transportation rates for common carrier or contract carrier (Section 11(e)(ii)),
• monitor prices and take corrective measures to prevent restrictive trade practices by the entities, in respect of notified petroleum, petroleum products and natural gas (Section 11(f)(iii)).
• monitor transportation rates and take corrective action to prevent restrictive trade practices by the entities, in respect of notified petroleum, petroleum products and natural gas (Section 11(f)(vi)).

The term ‘transportation rate’ under the Act is defined in relation to common carrier, contract carrier or city or local natural gas distribution network. It is the rate or tariff to be charged by an entity who is authorized to operate a common carrier, contract carrier or city or local natural gas distribution network, for moving each unit of petroleum, petroleum products or natural gas, from another entity engaged in marketing of gas. Such another entity may be an importer or purchaser or a producer of gas seeking to transport its gas using the pipeline of the entity who is authorized, but shall not be a consumer.

The function of PNGRB is to regulate the inter se relationship of entities under the Act and not to regulate or control the relationship between the entities under the Act and the consumers. As far as the consumers are concerned, PNGRB is required to monitor prices and take corrective measures to prevent restrictive trade practices by the entities 

Judicial Interpretation:

The Hon’ble Supreme Court of India had the occasion to interpret the foregoing provisions of the Act in, Petroleum and Natural Gas Regulatory Board v Indraprastha Gas Ltd. (IGL) and Ors[1].. The PNGRB had pursuant to its functions and powers in relation to transportation tariff, sought to regulate;

1. network tariff for all the categories of consumers of natural gas in a CGD network,
2. compression charges for CNG for online compression of natural gas into CNG for subsequent dispensing to consumers in a CNG station, and
3. determination of network tariff and compression charge as per the procedure at Schedule A of the said Regulation,
   through the Petroleum and Natural Gas Regulatory Board (Determination of Network Tariff for City or Local Natural Gas Distribution Networks and Compression Charge for CNG) Regulations, 2008.These Regulations were struck down by the Supreme Court as being ultra vires the Act and held:

“In the case at hand, the Board has not been conferred such a power as per Section 11 of the Act. That is the legislative intent. Section 61 enables the Board to frame Regulations to carry out the purposes of the Act and certain specific aspects have been mentioned therein. Section 61 has to be read in the context of the statutory scheme. The regulatory provisions, needless to say, are to be read and applied keeping in view the nature and textual context of the enactment as that is the source of power. On a scanning of the entire Act and applying various principles, we find that the Act does not confer any such power on the Board and the expression “subject to” used in Section 22 makes it a conditional one. It has to yield to other provisions of the Act. The power to fix the tariff has not been given to the Board. In view of that the Board cannot frame a Regulation which will cover the area pertaining to determination of network tariff for city or local gas distribution network and compression charge for CNG. As the entire Regulation centres around the said subject, the said Regulation deserves to be declared ultra vires, and we do so.”

[1] 2015XII AD (S.C.) 198

Ministry of Petroleum and Natural Gas has discontinued its ‘subsidized imported gas schemes’
April 04, 2017

The Ministry of Petroleum and Natural Gas has discontinued its ‘subsidized imported gas schemes’. Under the said scheme imported gas were offered at subsidised rates to stranded and underutilised gas power projects. Reportedly, Ministry of Petroleum and Natural Gas may recommence this scheme depending upon requirement and necessity of the stakeholders.

Next Issue

August 2017

In-house contributors

• Alak Desai, Oil & Gas Team – Downstream
• Neha, Oil & Gas Team – Upstream

Sources

• Norwegian Petroleum Directorate
• S. Energy Information Administration
• The International Energy Agency
• Organisation of the Petroleum Exporting Countries
• The Oil and Gas Journal
• Official web-sites of various oil & gas companies
• Petroleum and Natural Gas Regulatory Board
• Directorate General of Hydrocarbon,
• Ministry of Petroleum and Natural Gas