PNGRB | Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Natural Gas Distribution Networks) Regulations, 2008
November 07, 2019

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The Authorizing Regulations may provide for a single-window clearance mechanism in respect of regulatory approvals required for laying, building, operating and expanding of the CGD networks. The single window clearance is expected to enable timely implementation of the awarded works and consequently also encourage more players in this field.

Reportedly, various entities quote high-numbers during the bidding process and are unable to comply with the same during the execution phase of the project. This anti-competitive practice is likely to be curbed is Regulation 16(3) of the Authorizing Regulations specifies penalties on the basis of weightage given in the bidding criteria.

Further, enhancement of penalty for each of the shortfalls set forth in Regulation 16(2) (a), (b), and (c) of the Authorizing Regulations may serve as a deterrent to the bidders who quote irrational numbers of PNG connections or CNG stations at the time of bidding and fail to achieve the same.

Regulation 5(6)(b) of the Authorizing Regulations lays down the qualifying criteria for the entities submitting the bid. Sub-clauses (i), (ii) and (iii) of the said Regulation 5(6)(b) mandate that the entity shall have in the past built or laid a hydrocarbon pipeline or CGD network of not less than 300 kilometres. The Authorizing Regulations have attempted to minimise risk of dominance of the CGD Network by including and allowing entities to form a joint venture with another entity holding at least 11 percent equity in the joint venture who has, in the past, laid and built either a hydrocarbon pipeline of length not less that 300 kilometres on a cumulative basis or a CGD Network. Equity stake of 11 percent may not confer any substantial powers to such entity and accordingly, this threshold may require a revisit.
The PNGRB, constituted under the PNGRB Act, 2006 has issued regulations relating to different aspects of various areas. In respect of ‘City Gas Distribution’ networks, the PNGRB has issued and notified the following regulations as on November 01, 2019.
a. Petroleum and Natural Gas Regulatory Board (Determining Capacity of City or Local Natural Gas Distribution Network) Regulations, 2015
b. Petroleum and Natural Gas Regulatory Board (Integrity Management System for City or Local Natural Gas Distribution Networks) Regulations, 2013
c. Petroleum and Natural Gas Regulatory Board (Access Code for City or Local Natural Gas Distribution Networks) Regulations, 2011
d. Petroleum and Natural Gas Regulatory Board (Code of Practice for Quality of Service for City or Local Natural Gas Distribution Networks) Regulations, 2010
e. Petroleum and Natural Gas Regulatory Board (Technical Standards and Specifications including Safety Standards for City or Local Natural Gas Distribution Networks) Regulations, 2008
f. Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas Distribution Networks) Regulations, 2008
g. Petroleum and Natural Gas Regulatory Board (Exclusivity for City or Local Natural Gas Distribution Network) Regulations, 2008
h. 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

This feature seeks to examine certain issues in respect of the Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Natural Gas Distribution Networks) Regulations, 2008 as amended vide regulations dated 21.11.2018.

1. Introduction
In exercise of the powers conferred by section 61 of the Petroleum and Natural Gas Regulatory Board Act, 2006, the Petroleum and Natural Gas Regulatory Board (‘PNGRB’) makes regulations for the effective functioning and governing of the Petroleum and Natural Gas system. The PNGRB has notified Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Natural Gas Distribution Networks) Regulations, 2008 and the amended regulations on 21.11.2018 (‘Authorizing Regulations’).
2. Concern Areas of Authorizing Regulations
2.1. Misuse of Exclusivity Period

Regulation 12 of the Authorizing Regulations provide to a common or contract carrier, an exclusivity period of 8 years to lay, build, operate or expand a CGD network. This exclusivity period may be extended under certain circumstances for specified periods. The proviso 3 of the said Regulation 12, enables PNGRB to extend the exclusivity period in the event of a delay in the flow of gas in the designated transmission line.

While the PNGRB would, arguably, examine the merits of each case before allowing any such extension of the exclusivity period, there is a strong possibility of misuse of this provision by the relevant entities and the upstream gas producer.

2.2. Encashment of performance bond by the PNGRB

Regulation 16 (3) of the Authorizing Regulations empowers the PNGRB to encash the performance bond upon issue of a notice to the defaulting entity and allowing it a reasonable period to fulfill its obligations. No punitive action is permitted to be taken if the defaulting entity takes remedial action within the prescribed period and to the satisfaction of the PNGRB.

In the absence of any guidelines as to what may be considered as a ‘reasonable period’, it would appear that the PNGRB has wide latitude on this matter, and PNGRB has been alleged to encash performance bonds without reasonable notice. A good case may be made out for setting guidelines for what may be considered as ‘reasonable period’.

2.3. The requirement of Minimum Eligibility Criteria under the ‘Expression’ of Interest route
2.4. Penalties for non-performance
2.5. Absence of a single window clearance mechanism
3. Conclusion
3.1. The ‘India Hydrocarbon Vision 2025’ published by the Ministry of Petroleum and Natural Gas, states that the share of natural gas in the energy mix of India is expected to increase to 20% in 2025 as compared to 11% in 2010.

This projection may appear aggressive since the share of gas in India’s primary energy mix has been dropping from 10 percent in 2010 to 6.2 percent in 2017 as reported in ‘Petrotech 2019’, prepared by McKinsey & Company. Further, Petrotech 2019 also reports that the total gas consumption has reduced from 162 Million Metric Standard Cubic Meter Per Day in 2011 to 145 Million Metric Standard Cubic Meter Per Day in 2018.

3.2. CGD network expansion has been slow due to delays in securing multiple clearances and post bidding financial challenges for some of the new entrants in the CGD segment. The sixth round of CGD bidding held in 2015 included 34 geographical areas, of which only 20 areas received biddings. The seventh round of CGD bidding held in 2016 to set-up CGD infrastructure in 11 smart cities under smart city mission received only 1 bid. Regulatory reforms are therefore a need of the hour.

Disclaimer The views appearing in this article are those of the author and not of Alaya Legal. The author may be reached at by writing to Alaya Legal at contact@alayalegal.com. Nothing herein is or may be construed as legal advice.