Lecture - I [Compatibility Mode]

7/29/2019 Lecture - I [Compatibility Mode]

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LectureLecture -- II

11


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Policy Perspective On Oil & GasPolicy Perspective On Oil & Gas

Regulatory FrameworkRegulatory FrameworkInIn

22

ByByShri M B LALShri M B LAL

Technical Member (Petroleum & Natural Gas)Technical Member (Petroleum & Natural Gas)

Appellate Tribunal For ElectricityAppellate Tribunal For Electricity

Government of IndiaGovernment of India


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Objective of CourseObjective of Course

Petroleum a vital sectorPetroleum a vital sector

Affect a Economy & GDP directlyAffect a Economy & GDP directly

Affect a day to day life of citizenAffect a day to day life of citizen In India oil sector still evolving & developingIn India oil sector still evolving & developing

Need to understand legislation and regulationNeed to understand legislation and regulation

33

policies of Governmentpolicies of Government Need to understand role of various laws in shapingNeed to understand role of various laws in shaping

development of oil sectordevelopment of oil sector

Need to understand legal, environmental,Need to understand legal, environmental,regulatory problems in oil sectorregulatory problems in oil sector


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Oil Industry at GlanceOil Industry at Glance

Oil Struck in AssamOil Struck in Assam --18671867

First commercial oil findingFirst commercial oil finding--1889 (Digboi)1889 (Digboi)

Formal E&P by Assam Oil CompanyFormal E&P by Assam Oil Company--18991899

Domestic Oil Production 250,000 tonnes perDomestic Oil Production 250,000 tonnes per

annumannum--19471947

44

Industrial Policy Resolution (defined petroleum toIndustrial Policy Resolution (defined petroleum tobe core sector)be core sector)--19541954


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Upstream & DownstreamUpstream & Downstream

Year 1947 : 0.25 MMTPA

Year 2008 : 35 MMTPACrude Oil Production

Year 1947 : 0.25 MMTPA

Refining Capacity

Historical Milestone of Oil IndustryHistorical Milestone of Oil Industry

66

Year 1947 : 1

Year 2008 : 18

% of Market ShareYear 1947 : 90% Foreign Companies

Year 2008 : 90% Indian Companies

Year 1947 : 37KM

Year 2008 : 8300KM

Pipeline Infrastructure

No. of Refineries


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Chronology of EventsChronology of Events

PrePre--IndependenceIndependence

Oil Struck at DigboiOil Struck at Digboi--18671867

Among first few countries to discover oilAmong first few countries to discover oil

Major activityMajor activity Import and Sale of ProductImport and Sale of Product

PostPost-- IndependenceIndependence --19471947

The Petroleum ActThe Petroleum Act --19341934

77

, ,, ,

Import of Products (Kerosene for lighting)Import of Products (Kerosene for lighting) Very Small Production of Crude (0.25MMTPA)Very Small Production of Crude (0.25MMTPA)

First DecadeFirst Decade --1950s1950s Setting up ONGCSetting up ONGC

Nationalization of OILNationalization of OIL

Initiated SelfInitiated Self--reliance Programreliance Program--New Refinery, IRLNew Refinery, IRL

Oil Field Act 1948Oil Field Act 1948

Petroleum Rules 1959Petroleum Rules 1959


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Second DecadeSecond Decade -- 19601960

Need of Petroleum InfrastructureNeed of Petroleum Infrastructure

IRL & IOC merger, Addition of New RefineryIRL & IOC merger, Addition of New Refinery

GuwahatiGuwahati--Siliguri Pipeline in the year 1964Siliguri Pipeline in the year 1964

Third DecadeThird Decade --19701970

The Pipeline ActThe Pipeline Act --19621962

88

--

Major oil discoveryMajor oil discovery Bombay HighBombay High Overall Oil Dependence Reduced to 30%Overall Oil Dependence Reduced to 30%

Fourth DecadeFourth Decade --1980s1980s New Refinery at Mathura by IOCNew Refinery at Mathura by IOC

No new discoveryNo new discovery-- Demand/Supply Gap IncreasedDemand/Supply Gap Increased

Overall Oil Dependence increased to 50Overall Oil Dependence increased to 50--60%60%


No Major Policy ChangeNo Major Policy Change


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Fifth DecadeFifth Decade --1990s1990s

Balance of Payment ProblemBalance of Payment Problem--19911991

Need for FDI in Upstream developmentNeed for FDI in Upstream development

New Economic PolicyNew Economic Policy-- LiberalizationLiberalization

Sixth DecadeSixth Decade --2000s2000s

The NELPThe NELP --19981998

99

Upstream & Downstream Sector DecontrolledUpstream & Downstream Sector Decontrolled Market has NOC & Private companiesMarket has NOC & Private companies

WayWay--forwardforward New oil & gas discoveriesNew oil & gas discoveries

Evolving gas marketEvolving gas market

Refining hub phenomenaRefining hub phenomena


PNGRB Act 2006PNGRB Act 2006


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Evolution of Legal Framework for PetroleumsEvolution of Legal Framework for Petroleums

in Indiain India Petroleum Act, 1934(30Petroleum Act, 1934(30--1934) and the rules made1934) and the rules made

there underthere under

The Oil fields (Regulation and Development) ActThe Oil fields (Regulation and Development) Act1948 (53 of 1948)1948 (53 of 1948)

The petroleum and natural gas rules 1959The petroleum and natural gas rules 1959

The petroleum pipelines (Acquisitions of right ofThe petroleum pipelines (Acquisitions of right of

1010

user n an Act, 1962 0 o 1963 .user n an Act, 1962 0 o 1963 . The oil industry (development) act 1974 (47 ofThe oil industry (development) act 1974 (47 of

1974) and Rules 19751974) and Rules 1975

Territorial waters, continental shelf, exclusiveTerritorial waters, continental shelf, exclusive

economic zone and other maritime zones act,1976economic zone and other maritime zones act,1976 NELP 1998NELP 1998

Petroleum Rule 2002Petroleum Rule 2002



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Function of Basic LawsFunction of Basic Laws

basic laws are typically a frameworkbasic laws are typically a framework

detail in separate regulationsdetail in separate regulations

and decisions by the regulatorand decisions by the regulator

basic law simple and straightforwardbasic law simple and straightforward

1111

outlines the policy decisionoutlines the policy decision underpins authority of regulatorunderpins authority of regulator

authorises changes to existing systemauthorises changes to existing system

building of new pipeline capacitybuilding of new pipeline capacity


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Function of Basic LawsFunction of Basic Laws

control of the structure of the industrycontrol of the structure of the industry

control of the pace of changecontrol of the pace of change

identity of the regulatoridentity of the regulator

1212

licensing systemlicensing system

responsibility for safetyresponsibility for safety


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Provisions in Petroleum Act 1934Provisions in Petroleum Act 1934

Petroleum Act, 1934(30Petroleum Act, 1934(30--1934) and the rules made there under1934) and the rules made there under

Title, extend and commencementTitle, extend and commencement

DefinitionsDefinitions Control over PetroleumControl over Petroleum

Regulating power over exploration, production, import,Regulating power over exploration, production, import,

1313

, ,, ,

Classification of Petroleum based on flash point (Class A 65 degreedegree; Class B >20 upto 65 degree; Class C > 65 degree

Testing of petroleum'sTesting of petroleum's

Penalties and procedurePenalties and procedure Power to make any rule under this Act.Power to make any rule under this Act.

Power to limit powers of local authorities over petroleumPower to limit powers of local authorities over petroleum

Provision to exercise jurisdictionProvision to exercise jurisdiction--offence punishable intooffence punishable intoserious accidents with petroleumserious accidents with petroleum


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Provisions in Oilfield Act 1948Provisions in Oilfield Act 1948

The Oilfields (Regulation & development) Act 1948The Oilfields (Regulation & development) Act 1948

Title of Mines & MineralsTitle of Mines & Minerals

No mining is permitted unless it is in accordance with the ActNo mining is permitted unless it is in accordance with the Act Covers power to make rules as respects mining leasesCovers power to make rules as respects mining leases

Covers power to make rules as respects development ofCovers power to make rules as respects development ofmineral oilmineral oil

1414

RoyaltiesRoyalties Modification of existing leasesModification of existing leases

DelegationDelegation

PenaltiesPenalties

Laying of rules and notificationsLaying of rules and notifications Power to inspectionPower to inspection

Relaxation of rules in special casesRelaxation of rules in special cases

Act to be binding on the GovernmentAct to be binding on the Government

Protection of action taken in good faithProtection of action taken in good faith


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Provisions in Pipeline Act 1962Provisions in Pipeline Act 1962

It extend to whole India except J&KIt extend to whole India except J&K

Power to entry and surveyPower to entry and survey

Declaration of acquisition of right of useDeclaration of acquisition of right of use

Power to enter land for inspectionPower to enter land for inspection

1515

Restriction regarding use of landRestriction regarding use of land Compensation for landCompensation for land

PenaltyPenalty

Power to make rulesPower to make rules


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Provisions in Petroleum Rules 1959Provisions in Petroleum Rules 1959

The Petroleum and Natural Gas Rules 1959The Petroleum and Natural Gas Rules 1959 Provides legal framework for grant of licenses and miningProvides legal framework for grant of licenses and mining

leasesleases

Prospecting and mining not allowed except under a license orProspecting and mining not allowed except under a license orlease granted under the rules (Rule 4)lease granted under the rules (Rule 4)

GOI has the power to grant license or leases in all respectGOI has the power to grant license or leases in all respectwithin economic zone or minerals underl in the ocean withinwithin economic zone or minerals underl in the ocean within

1616

territorial waters or the continental shelf [Rule 5(i)]territorial waters or the continental shelf [Rule 5(i)] State government has power to grant license or lease over theState government has power to grant license or lease over the

lands vested with it [Rule 5(ii)]lands vested with it [Rule 5(ii)]

License entails the exclusive right to a lease for producingLicense entails the exclusive right to a lease for producing

oil/gas over any part of area covered in licenseoil/gas over any part of area covered in license Prospector need to pay various element like annual licenseProspector need to pay various element like annual license

fees, royalty, taxes and agreed profit hydrocarbon etc.fees, royalty, taxes and agreed profit hydrocarbon etc.

Provision for arbitration in case of difference with governmentProvision for arbitration in case of difference with government


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Deals with mainly storage & transport ofDeals with mainly storage & transport ofpetroleum'spetroleum's

Talks about authority of CCOETalks about authority of CCOE Cover technical & safety guidelines for storageCover technical & safety guidelines for storage

of various classified productsof various classified products

1717

Special Precautions against accidentSpecial Precautions against accident Talks about building & repair of infrastructureTalks about building & repair of infrastructure

facility in petroleumsfacility in petroleums

Provided with format for applying variousProvided with format for applying variouslicense and statutory requirement to be metlicense and statutory requirement to be met


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Provisions in Territorial Water Act 1976Provisions in Territorial Water Act 1976

Called as a Territorial water,continetal shelf,Called as a Territorial water,continetal shelf,exclusive economic zone and other maritime zonesexclusive economic zone and other maritime zonesAct,1976.Act,1976.

Define the limits of the territorial water as 12Define the limits of the territorial water as 12nautical miles from the nearest point of appropriatenautical miles from the nearest point of appropriate

baseline.baseline.

1818

The limit of continental shelf defined as 200 nauticalThe limit of continental shelf defined as 200 nauticalmiles from the base linemiles from the base line

Sovereign right for the purpose of exploration,Sovereign right for the purpose of exploration,exploitation, conservation and management of allexploitation, conservation and management of allresourcesresources

Such rights are recognized by international lawSuch rights are recognized by international law


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Provisions in NELPProvisions in NELP --19981998

New Exploration Licensing PolicyNew Exploration Licensing Policy-- 19981998

Economic terms clearly definedEconomic terms clearly defined

Economic Incentives Offered (Tax holiday, NoEconomic Incentives Offered (Tax holiday, Nobonus)bonus)

Fiscal stability provision in the contractFiscal stability provision in the contract

1919

pe ro eum ax gu e n p acepe ro eum ax gu e n p ace

The possibility of a seismic option in the first phaseThe possibility of a seismic option in the first phaseof the exploration periodof the exploration period

No objection certificates to compete for acreagesNo objection certificates to compete for acreages

Foreign participation upto 100%Foreign participation upto 100%

Arbitration and Conciliation Act,1996 based onArbitration and Conciliation Act,1996 based onUNCITRAL lawUNCITRAL law


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Technical and safety rulesTechnical and safety rules

Powers and Authority of Chief Controller ofPowers and Authority of Chief Controller of

ExplosiveExplosive

Specification for various kind of storage andSpecification for various kind of storage and

2020

Classification of productsClassification of products

Various format for application of specifiedVarious format for application of specified

license to store & transport petroleumslicense to store & transport petroleums

Rules for different mode of transportRules for different mode of transport


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Provisions in PNGRB ActProvisions in PNGRB Act--20062006

Petroleum and Natural Gas Board establishedPetroleum and Natural Gas Board established

Act empower Board to regulate petroleum andAct empower Board to regulate petroleum and

gas activities in entire value chain except E&Pgas activities in entire value chain except E&P Aim to ensure transparency and fair play in theAim to ensure transparency and fair play in the

market while protecting consumer interestmarket while protecting consumer interest

2121

To promote competitive marketTo promote competitive market Ensure uninterrupted supply in domesticEnsure uninterrupted supply in domestic

marketmarket

Provision to pass various regulations on tariff,Provision to pass various regulations on tariff,pipeline authorization and safety and technicalpipeline authorization and safety and technicalaspect of value chainaspect of value chain


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Provisions in PNGRB ActProvisions in PNGRB Act--20062006

Obtaining statutory permits, clearances andObtaining statutory permits, clearances andapprovals & ensuring their validity;approvals & ensuring their validity;

Providing assurance of gas supply to customers;Providing assurance of gas supply to customers; Charging approved tariff from the end customers;Charging approved tariff from the end customers;

Appropriate systems and procedures for safeAppropriate systems and procedures for safe

2222

opera on;opera on;

Complete disclosure of information on deliveredComplete disclosure of information on deliveredprice & tariff;price & tariff;

Services and database to be maintained by theServices and database to be maintained by theentity;entity;

Ensuring confidentiality of customer information;Ensuring confidentiality of customer information;

Establishing systems and procedures forEstablishing systems and procedures for

addressing customer complaints.addressing customer complaints.


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Upstream & DownstreamUpstream & DownstreamRegulator - DGH

Open Competitive Bidding

Competitive pricing of Oil & Gas

Govt. Profit sharing based on Investment Multiple

7 year tax holiday for Crude Oil (not gas) production

Oil & Gas E&P

Regulator - DGH


Competitive pricingCBM Exploration

Regulatory & Legal FrameworkRegulatory & Legal Framework

2323

Regulator PNGRB (Regulations Partly Notified)


Non-discriminatory Open Access

Regulated Tariff

Setting Up of LNG

terminals, Storage,Marketing of LNG / NG

No Licensing ; Simple Registration

Regulator PNGRB (Regulations Notified)Open Competitive Bidding

Exclusivity Period of 25 years

Pricing base - Network Tariffs and gas price

Network Tariff methodology specified

No control over price

City Gas Distribution / CNG

Pipeline Transmission

Production Linked Payment

7 Years Tax holiday


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Policy & Rules on FDIPolicy & Rules on FDI

FDI up to 100%is allowed in upstream sectorFDI up to 100%is allowed in upstream sector

FDI upto 100% is allowed in marketing ofFDI upto 100% is allowed in marketing ofpetroleum products subject to the sectoral policypetroleum products subject to the sectoral policyand regulatory frameworkand regulatory framework

FDI up to 100% allowed in petroleum's (oilFDI up to 100% allowed in petroleum's (oilproducts & gas) pipelines subject to GOI policy andproducts & gas) pipelines subject to GOI policy and

2424

regu a onregu a on

Formation of 100% wholly owned subsidiary isFormation of 100% wholly owned subsidiary isallowed for investment/financing/market studyallowed for investment/financing/market study

FDI upto 26% in setting up refining ( except withFDI upto 26% in setting up refining ( except withspecial approval Ex. Bhatinda refinery)special approval Ex. Bhatinda refinery)

FDI upto 100% allowed in refinery in case ofFDI upto 100% allowed in refinery in case ofprivate Indian companiesprivate Indian companies


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Additional Acts & RulesAdditional Acts & Rules

The Essential Commodities Act 1955The Essential Commodities Act 1955

Competition Act 2002Competition Act 2002 Environment Protection Act, together withEnvironment Protection Act, together with

2525

Air Act 1981Air Act 1981 (Prevention & Control of Pollution)(Prevention & Control of Pollution)

Water Act 1974Water Act 1974 (Prevention & Control of Pollution)(Prevention & Control of Pollution)

Various Labour and employment lawsVarious Labour and employment laws Taxes & Duties ActTaxes & Duties Act


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DGHDGH-- Upstream RegulatorUpstream Regulator

DGH (Directorate General of Hydrocarbon)DGH (Directorate General of Hydrocarbon)

set up in 1993set up in 1993

DGH function and exercise power on behalf ofDGH function and exercise power on behalf of

GOI within the purview following ActGOI within the purview following Act

2626

e o e egu at on an eve opment ct,e o e egu at on an eve opment ct,

The petroleum and Natural Gas Rules,1959The petroleum and Natural Gas Rules,1959

MOP&NG has administrative control overMOP&NG has administrative control over

DGHDGH


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DGHDGH-- Upstream RegulatorUpstream Regulator Overall duties of DGH is to promote soundOverall duties of DGH is to promote sound

management of oil & gas resources keeping inmanagement of oil & gas resources keeping inmind the environment safety, technologicalmind the environment safety, technologicaland economic aspects of upstream activitiesand economic aspects of upstream activities

2727

m n s er ng sm n s er ng s

Administering Various Fiscal MeasureAdministering Various Fiscal Measureapplicable to sectorapplicable to sector

Provide level playing field to allProvide level playing field to all Role as arbitrator in case of dispute among theRole as arbitrator in case of dispute among the

operatoroperator


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PNGRBPNGRB--Downstream RegulatorDownstream Regulator PNGRB set up under The Petroleum and Natural GasPNGRB set up under The Petroleum and Natural Gas

Regulatory Board Act 2006Regulatory Board Act 2006 Board has Chairperson and four eminent memberBoard has Chairperson and four eminent member

from the various field as said in Actfrom the various field as said in Act

2828

Appeals against the PNGRB decision will beAppeals against the PNGRB decision will beconsidered by Appellate Tribunal established underconsidered by Appellate Tribunal established under

Electricity Act 2003Electricity Act 2003

The Board and Appellate Tribunal shall exerciseThe Board and Appellate Tribunal shall exercisepowers and authority of a Civil Courtpowers and authority of a Civil Court


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PNGRBPNGRB--Downstream RegulatorDownstream Regulator Board exercise the power & authority underBoard exercise the power & authority under


To decide on the period of exclusivity forTo decide on the period of exclusivity forbuilding and operating the networkbuilding and operating the network

2929

Ensure availability of petroleum productsEnsure availability of petroleum products Monitor the price, transportation rates, secureMonitor the price, transportation rates, secure

equitable distributionequitable distribution

Enforce retail service obligationEnforce retail service obligation Lay down technical standards including safetyLay down technical standards including safety

standards for pipelines and other infrastructurestandards for pipelines and other infrastructure

projectsprojects


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Regulating & Monitoring InstitutionsRegulating & Monitoring Institutions

PNGRB

MOPNGDGH

3030

PetroleumPetroleumSector

.

State

Govt.

MOEF

MEA

MCA&P

D


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Special Cell Within MOP&NGSpecial Cell Within MOP&NGOther statutory organisations and specialOther statutory organisations and special

purpose cell who act independently but withinpurpose cell who act independently but withinpurview of ministry objective are as follows:purview of ministry objective are as follows:

3131

Centre For High TechnologyCentre For High Technology Oil Industry Development Board.Oil Industry Development Board.

Oil Industry Safety DirectorateOil Industry Safety Directorate

Petroleum Conservation Research Association.Petroleum Conservation Research Association. Petroleum Planning And Analysis CellPetroleum Planning And Analysis Cell

Petroleum Federation of India (PetroFed)Petroleum Federation of India (PetroFed)


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Overview of SectorOverview of Sector

Petroleum Sector

3232

E & P

Re n ng

&

Marketing

Natural Gas

ONGC

OIL

CAIRN

RIL

IOC

HPCL

BPCL

NRL

MRPL

KRLBRPLCPCL

GAIL

Reliance Energy

BG

Gujarat Gas


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Energy Centurys

19th CENTURY - COAL

19th CENTURY - COAL

3333

20th CENTURY - OIL

21ST CENTURY - GAS

20th CENTURY - OIL


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World Energy MixWorld Energy Mix

4 000

5 000

6 000

7 000

e

Oil

Natural gas4 000

5 000

6 000

7 000

e

Oil

Natural gas

3434

0

1 000

2 000

3 000

1970 1980 1990 2000 2010 2020 2030

Mt

Coal

Nuclear power

Hydro power

Other renewables

0

1 000

2 000

3 000

1970 1980 1990 2000 2010 2020 2030

Mt

Coal

Nuclear power

Hydro power

Other renewables


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Primary Energy Mix of IndiaPrimary Energy Mix of India

% Oil Stagnated

3535

% Coal Declined

% Gas Increased


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Oil & Gas ReservesOil & Gas Reserves

Oil Reserve

Stagnated

3636

Gas Reserve

Up

S l /D d P j ti f I diS l /D d P j ti f I di


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20062006 20152015 20302030

Domestic Oil ProductionDomestic Oil Production

(Million bbl/ day)(Million bbl/ day)0.790.79 0.730.73 0.520.52

20052005 20142014 20302030

Supply/Demand Projection for IndiaSupply/Demand Projection for India

3737

Oil RefiningOil Refining

(Million bbl / day)(Million bbl / day)2.92.9 5.25.2 8.18.1

Data Source- IEA World Energy Outlook 2007

20062006 20152015 20302030Oil demandOil demand

(Mtoe)(Mtoe)129129 188188 328328


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Gas ConsumptionGas Consumption(In MCM)(In MCM)

3838

Increasing

Trends


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Gas ConsumptionGas Consumption(In MCM)(In MCM)

3939

Increasing

Trends


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City Gas/ CNG

5%

Others

10%

Steel

Power40%

Petrochemical

and Refinery5%

Gas ConsumptionGas Consumption PatternPattern20072007-- 0808

4040

LPG7%

Fertilizer30%

Total Gas Consumption (2007Total Gas Consumption (2007--08) : 103 MMSCMD08) : 103 MMSCMD


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Gas Demand Supply ScenarioGas Demand Supply Scenario

YearsYears 20072007--0808 20082008--0909 20092009--1010 20102010--1111 20112011--1212

Supply ProjectionsSupply Projections

Domestic ProductionDomestic Production 79.4079.40 119.73119.73 140.26140.26 146.98146.98 170.72170.72

(In mmscmd)

4141

Total LNG SupplyTotal LNG Supply 31.5031.50 31.5031.50 31.5031.50 31.5031.50 81.3881.38

Total Gas SupplyTotal Gas Supply 110.9110.9 151.23151.23 171.76171.76 178.48178.48 252.1252.1

Demand ProjectionsDemand Projections

Total Gas DemandTotal Gas Demand 179179 196196 222222 265265 283283

Demand Supply GapDemand Supply Gap

Net Demand Supply GapNet Demand Supply Gap 68.168.1 44.7744.77 50.2450.24 86.5286.52 30.930.9

Source: Draft gas utilization policy/ XI planning commission Report

G D d S l O tl kG D d S l O tl k


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150

300

MMscmd

Supply Deficit

Gas Demand Supply OutlookGas Demand Supply Outlook

4242

0

2006 2007 2008 2009 2010 2011 2012Public Sector Private / JV'sReliance Petronet LNGHazira LNG Kochi LNGDabhol LNG Supply Upsides - existing discoveriesIndia Demand (IHV 2025) XI Plan Working Group Demand Projections

Indian Energy Scenario : GasIndian Energy Scenario : Gas


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Indian Energy Scenario : GasIndian Energy Scenario : Gas

India Gas Consumption (BCM)India Gas Consumption (BCM) Share of LNG in Indias Gas Consumption MixShare of LNG in Indias Gas Consumption Mix

(Percent)(Percent)

0 00 0

1997 2002 20071997 2002 2007 1997 20021997 2002 20072007

2031 45

+ 8%

22

4343Source : McKinsey 2008

Share of Gas in Indias Energy Consumption Mix Share of India in Asias Gas Consumption MixShare of Gas in Indias Energy Consumption Mix Share of India in Asias Gas Consumption Mix

(Percent)(Percent) (Percent)(Percent)

19971997 20022002 20072007 19971997 2002 20072002 2007

6.4 8.48.6

+2.2%

8.6 9.910.1

+1.5%


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Indian Gas SectorIndian Gas Sector UpstreamUpstream


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Indian Gas SectorIndian Gas Sector UpstreamUpstream

26 sedimentary basins: 3.14million sq. km.

Onland area- 1.39 million

sq km.

Offshore area- 1.75 million

sq km.

About 50% of area

unexplored or poorly explored.

4545

207 blocks awarded till

NELP VII

Balance recoverable

reserves: 1.85 BMT (O+OEG)

Current oil production: 36.3

MMT(2007)

Current Gas Production :

37.60 BCM (2007-08)

CBM in India : Reserves EstimatesCBM in India : Reserves Estimates


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Coal Bearing Area :35,400 sq km

Coal and Lignite fields :

44 ( 12 states)

CBM Resource Base :162 TCF( 4.6 TCM)

Tertiary Coal/ Lignite fields

Gondwana Coal

Delhi

CBM in India : Reserves EstimatesCBM in India : Reserves Estimates

4646

Mumbai

Chennai

Kolkata

Source :DGH

Coal Bed MethaneCoal Bed Methane CBMCBM


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CBM Potential In IndiaCBM Potential In India

IDENTIFIED FOR EXPLORATION

16%

Coal Bed MethaneCoal Bed Methane--CBMCBM

4747

EXPLORATION INITIATED

22%

UNEXPLORED

62%

Source: DGH

Total India CBM reserves expected to be around 4.6 Trillion CM


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City Gas Distribution MarketCity Gas Distribution Market

CGD ConsumersCGD ConsumersIndraprastha Gas limitedIndraprastha Gas limited

(Delhi &NCR)(Delhi &NCR)

Mahanagar Gas LimitedMahanagar Gas Limited

(Mumbai)(Mumbai)

Length of CGDLength of CGDNetworkNetwork

1100km1100km 2250km2250km

DomesticDomestic 9416394163 336873336873

4848

CommercialCommercial 276276 907907

IndustrialIndustrial 1616 3636

CNG StationCNG Station 153153 128128

No. of VehiclesNo. of Vehicles 128000128000 156540156540

Investment MadeInvestment MadeRs.950Rs.950--

1000crore(Approx)1000crore(Approx)

Rs.650Rs.650--

700crore(Approx)700crore(Approx)

Indian Gas SectorIndian Gas Sector Downstream (CGD)Downstream (CGD)


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Indian Gas SectorIndian Gas Sector Downstream (CGD)Downstream (CGD)

35

40

Overall CGD Demand forecast (MMSCMD)Cheaper and Cleaner Fuel, on an averageCheaper and Cleaner Fuel, on an average

NG is cheaper by more than 50%NG is cheaper by more than 50%

compared to existing fuels (MS, LPG,compared to existing fuels (MS, LPG,

Diesel etc)Diesel etc)

For Delhi NCR & Mumbai DemandFor Delhi NCR & Mumbai Demand

projected to grow at 7.6% CAGR (fromprojected to grow at 7.6% CAGR (from

6.5 MMSCMD to 9 MMSCMD in 20116.5 MMSCMD to 9 MMSCMD in 2011--121211% CAGR

4949

0

5

10

15

20

25

30

2007-08 2011-12 2016-17

XI Five Year Plan projects that anXI Five Year Plan projects that aninvestment to the tune of Rs 8000investment to the tune of Rs 8000 --

10000 cr would be made in next 5 years.10000 cr would be made in next 5 years.

Companies operating in Delhi (NCR) &Companies operating in Delhi (NCR) &

Mumbai CGD circle have an ROIC moreMumbai CGD circle have an ROIC more

than 40%.than 40%.

Handful of players in CGD marketHandful of players in CGD market IGL, MGL,IGL, MGL,

GGCL, Adani, Green Gas, TNGCL, BGL, AvantikaGGCL, Adani, Green Gas, TNGCL, BGL, Avantika

Gas, MNGLGas, MNGL

SourceSource ICRA Report 2008, InfralineICRA Report 2008, Infraline

RegulationRegulation


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RegulationRegulation

Definition/sDefinition/s To control or supervise by means of rules andTo control or supervise by means of rules and

regulationsregulations

To subject to Guidance or restrictionsTo subject to Guidance or restrictions

Regulation is a process established by law thatRegulation is a process established by law that

restricts or controls some specified decisions maderestricts or controls some specified decisions made

5050

public from exploiting by firms with monopolypublic from exploiting by firms with monopolypower.power.

Supreme Court has observed that regulationSupreme Court has observed that regulation

confers plenary power over things subject toconfers plenary power over things subject toregulation consistent with the letter and spirit ofregulation consistent with the letter and spirit of

lawlaw

Why Need Regulatory FrameworkWhy Need Regulatory Framework


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Why Need Regulatory FrameworkWhy Need Regulatory Framework

Strengthening Sovereignty of StateStrengthening Sovereignty of State

Anticipated Depletion of Defined NaturalAnticipated Depletion of Defined Natural

ResourcesResourcesNational sentiment of scarcity of naturalNational sentiment of scarcity of natural

resources & their o timum utilizationresources & their o timum utilization

5151

State successionState successionPossible Nationalization & ExpropriationPossible Nationalization & Expropriation

Promotion & Protection of foreign investmentPromotion & Protection of foreign investment

I t ti l P i i l f S i tI t ti l P i i l f S i t


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International Principal of SovereigntyInternational Principal of Sovereignty

Sovereignty of any state is acknowledgedSovereignty of any state is acknowledgedinternationally by following resolution and treatyinternationally by following resolution and treaty

1962 UNGA Resolution 1803(XVII) in its first1962 UNGA Resolution 1803(XVII) in its firststatementstatement

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1974 Charter of Economic Rights & Duties of states1974 Charter of Economic Rights & Duties of states 1972 Stockholm Declaration on the Human1972 Stockholm Declaration on the Human

EnvironmentEnvironment

1992 Rio Declaration on Environment &1992 Rio Declaration on Environment &DevelopmentDevelopment


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What all they sayWhat all they sayThe principal provision in all international declaration andThe principal provision in all international declaration andtreaty on state sovereignty aretreaty on state sovereignty are

Permanent sovereignty over natural resourcesPermanent sovereignty over natural resources

Jurisdiction to regulate economic activityJurisdiction to regulate economic activity

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Protection of Commodity pricesProtection of Commodity prices Principal related to compensation for the nationalization ofPrincipal related to compensation for the nationalization of

foreign investmentforeign investment

The sovereignty right of every state to dispose of its natural The sovereignty right of every state to dispose of its naturalwealth and resources should be respected. in accordance withwealth and resources should be respected. in accordance withtheir national intereststheir national interests UNGA Resolution 1803UNGA Resolution 1803( 1962) First Statement( 1962) First Statement


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Constitution of IndiaConstitution of India

Article 297Article 297 define sovereignty over natural resources that is asdefine sovereignty over natural resources that is asunderunder

Things of value within the territorial waters or the continentalThings of value within the territorial waters or the continentalshelf or the exclusive economic zone of India shall vest in theshelf or the exclusive economic zone of India shall vest in theUnion and be held for the purposes of the UnionUnion and be held for the purposes of the Union

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o er resources o e exc us ve econom c zone o n ao er resources o e exc us ve econom c zone o n a

shall also vest in the Union and be held for the purposes of theshall also vest in the Union and be held for the purposes of theUnionUnion

The limits of the territorial waters, the continental shelf, the The limits of the territorial waters, the continental shelf, theexclusive economic zone, and other maritime zones, of Indiaexclusive economic zone, and other maritime zones, of India

shall be such as may be specified, from time to time, by orshall be such as may be specified, from time to time, by orunder any law made by parliamentunder any law made by parliament

ROLE OF REGULATIONROLE OF REGULATION


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Enhance Efficiencies

Promote Investment& Competition

REGULATION

Ensure Performance

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Control over:Market Power

Monopoly powerBottleneck facility

Check anddetermine economicTARIFF, CROSS-SUBSIDY,SUBSIDY, SURCHARGE

Balancing Interest

of Stakeholders

Universal Service Obligation


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Origin of RegulationOrigin of Regulation USAUSA---- Market Abuse by MonopolyMarket Abuse by Monopoly

UKUK ---- Privatization of IndustryPrivatization of Industry

IndiaIndia ---- LiberalizationLiberalization

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---- Need of Investment (FDI)Need of Investment (FDI)---- World Bank AssistanceWorld Bank Assistance

---- Enhance Efficiency of SectorEnhance Efficiency of Sector

---- Overall economic developmentOverall economic development

price


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price

DemandP

m

A

APm

The Natural MonopolyCase

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AC

MC

quantity

MR

P

r

A

B

BPr


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Natural MonopolyNatural Monopoly Production side scale and scope economiesProduction side scale and scope economies

More correctly subMore correctly sub--additivity of costs shouldadditivity of costs shouldholdhold

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Deman s e an networ e ects ma e manyDeman s e an networ e ects ma e many

situations natural monopolies even withoutsituations natural monopolies even without

scale and scope on production sidescale and scope on production side

CONTEXT OF REGULATORY FRAMEWORKCONTEXT OF REGULATORY FRAMEWORK


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POLICIESSector Strategy

SubsidyMarket design

Government

CONSUME

R

INTEREST

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Service deliveryRegulatory compliances

Restructure organizationBusiness planOperations

Regulator

Economic regulation/TariffMarket & competitionRules for entry & exit/Licensing

Performance regulationDispute resolution

Entities

What does a industry need in terms ofWhat does a industry need in terms of


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What does a industry need in terms ofWhat does a industry need in terms of

Regulatory framework?Regulatory framework?

Availability of energy commodityAvailability of energy commodity

policy decision on industry structurepolicy decision on industry structure

basic lawsbasic laws

detailed regulationdetailed regulation

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investmentinvestment

potential for competition to developpotential for competition to develop

producerproducer--supplier contractssupplier contracts

political will and supportpolitical will and support


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Regulatory Framework & Government AimsRegulatory Framework & Government Aims

not to control supply of energynot to control supply of energy

be very careful of the obligation to supplybe very careful of the obligation to supply

create framework for secure, diverse and sustainable suppliescreate framework for secure, diverse and sustainable supplies

of energy in forms that consumers wantof energy in forms that consumers want

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mar et e t to a ance supp y an eman n t e ong termmar et e t to a ance supp y an eman n t e ong term

(price)(price)

emergency powers very commonemergency powers very common

fl i f lfl i f l


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Influence on Design of Regulatory SystemsInfluence on Design of Regulatory Systems

monopoly is the typical starting pointmonopoly is the typical starting point

end point of liberalisation is a matter for governmentend point of liberalisation is a matter for government

energy monopolies viewed as failing to provide sufficientlyenergy monopolies viewed as failing to provide sufficiently

cheap powercheap power

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ent y ng u cost o generat onent y ng u cost o generat on

allowing possibility of competition does not seem to beallowing possibility of competition does not seem to be

sufficientsufficient

vertical integrationvertical integration

S l f R l iS l f R l i


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Style of RegulationStyle of Regulation

rate of returnrate of return

price regulationprice regulation

location of regulatorlocation of regulator

independence of regulatorindependence of regulator

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controls on natural monopoliescontrols on natural monopolies

access to informationaccess to information

balancing of competing interestsbalancing of competing interests

Policy Decisions on Industry StructurePolicy Decisions on Industry Structure


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Policy Decisions on Industry StructurePolicy Decisions on Industry Structure

initial level of competitioninitial level of competition

where is competition desirable / possible?where is competition desirable / possible? Competition for the right to produce energy commodityCompetition for the right to produce energy commodity

wholesale competitionwholesale competition

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reta compet t onreta compet t on

restructuring and liberalisationrestructuring and liberalisation

licensing for new entrantslicensing for new entrants

licensing criterialicensing criteria

who issues the licencewho issues the licence

P li d i iP li d i i


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Policy decisionsPolicy decisions

what happens to existing companieswhat happens to existing companies

commercialisationcommercialisation corporatisationcorporatisation

privatisationprivatisation

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identity of the regulatoridentity of the regulator powers of the regulatorpowers of the regulator

development of future competitiondevelopment of future competition

individual consumer choiceindividual consumer choice pricing and subsidy decisionspricing and subsidy decisions


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Regulatory CaptureRegulatory Capture By GovernmentBy Government

By IndustryBy Industry By Consumer GroupBy Consumer Group

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y ppo n men rocessy ppo n men rocess

Success & Failure Regulatory FrameworkSuccess & Failure Regulatory Framework


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g yg y

SUCCESSSUCCESS FAILUREFAILURE

Investment AttractedInvestment Attracted Biased DecisionsBiased Decisions

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Competitive PriceCompetitive Price Attitude of controlling thanAttitude of controlling thanfacilitatingfacilitating

Quality of ServiceQuality of Service No control over priceNo control over price

Important WebsitesImportant Websites


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pp

http://petroleum.nic.in/http://petroleum.nic.in/

http://www.dghindia.org/site/index.aspxhttp://www.dghindia.org/site/index.aspx http://pngrb.gov.in/http://pngrb.gov.in/

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http://www.aptel.gov.in/contact.htmlhttp://www.aptel.gov.in/contact.html


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Thank YouThank You

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