Petroleum & Natural Gas Regulatory Board Act 2006Past Evolution and Future

DevelopmentsBy

B S Negi Member

Petroleum and Natural Gas Regulatory Board

New Delhi, 14th-15th April 2008

5th Asia Gas Partnership Summit 2008

CONTENTS

INDIAN ECONOMY

INDIAN OIL & GAS SCENARIO

NEED FOR REGULATORY BOARD

PETROLEUM AND NATURAL GAS REGULATORY BOARD (PNGRB) ACT 2006

GOVERNMENT POLICIES

FUNCTION OF THE BOARD

BOARD CONDUCIVE TO GROWTH OF OIL & GAS SECTOR

ISSUES

WAY FORWARD

*source Economic Survey 2007

*source RBI Press Release dated 30 Aug 2007

Indian Economy- Present State Indian Economy- Present State

7th largest country in the world and 2nd largest in Asia

4th largest economy in terms of Purchasing Power Parity (PPP) next only to United States, Japan and China

5TH largest energy consumer 6th largest gas consumerGDP growth 9.2%* during financial year

2006-07 GDP-composition by sector: Agriculture -

18.5%*, Industry - 26.4%*, Services - 55.1%*.Net Foreign Direct Investment (FDI) inflows

2006-07: USD 19.4 billion*.

26 sedimentary basins: 3.14 million sq. km.

Onland area - 1.39 million sq. km.Offshore area - 1.75 million sq. km.

About 50% of area unexplored or poorly explored

162 blocks awarded till NELP VI

Indian Oil & Gas Sector StatisticsSedimentary Basins & Hydrocarbon Reserves

………a lot of potential to explore

Balance recoverable reserves : 1.85 BMT (O+OEG)

Current Oil production : 32.19 MMT (2005-06)

Current Gas production : 32.20 BCM (2005-06)

Indian Gas Sector Statistics

Oil Refining capacity- 148 mmtpa Petro Products consumption -128 mmtpa Gas Consumption- 39 bcm LNG Import( 5 mmtpa long term, 1 mmtpa spot) Natural Gas Pipeline – 8000 Kms (Including regional

Network) Product Pipeline – 10000 Kms (including LPG Pipelines) City Gas Distribution 17 cities supplied with Gas 5 cities waiting for Gas supply About 0.40 million vehicles are running on CNG About 0.79 million household are connected to PNG

Investment need across all infrastructure sectors – large opportunity for input providers

Source: Planning Commission Working Group reports

…will create demand for

Power equipment

EPC Contracting

Construction equipment

Material Handling equipment

Electronic and IT systems

Environment technologies

Transport equipment

Financial services

Real estate

Education and training

Design and Planning services

Advisory and professional services

Key Sectors Estimated Investment

(2007-12, USD Bn)

Airports 7 – 10Irrigation 15 – 20Ports 12 – 15Power 150 – 180Pipeline 7 – 10 Railways 40 - 55Roads 45 - 60Urban infrastructure

20 - 30

SEZ 60 – 70

Indian Oil & Gas Sector- Evolution

1886 – oil found in upper Assam in India 1901 – First refinery set up at Digboi 1960 – Development along west coast following offshore and on

shore discoveries of ONGC 1960s – Gas discovered by ONGC in Assam 1993 onwards – Next stage of development, gas discoveries by

GSPC, Niko, RIL,BG, Cairn and others 1998 – GSPC floated a separate SPV, GSPL. To build transmission

lines 1999 – Gas discovered by ONGC and Cairn at Ravva 2002 – Gas discovery by RIL at KG Basin 2004 – Gas discovery by GSPC at KG basin 2004 – Petronet LNG commissioned Dahej terminal 2005 – Shell built the Hazira LNG terminal 2006 – Spot cargos unloaded at Hazira and Dahej 2007- RLNG reaches Dhabol plant- Spot cargoes from Qatar

Upstream – Crude Oil Demand, Production & Import Trends

MMT

Gas Demand, Production & Import Trends

BCM

Need for Regulator

Need for regulator due to : increasing pool deficits increasing import dependence, increasing complexities Price disparities Attract investment - globalization and liberalization

Price disparity-Natural Gas APM Price-$ 2.032/mmbtu, $1.22/mmbtu(North East) PMT($4.75/mmbtu till 31-3-08, now $5.75/mmbtu from 1-4-

08) Ravva ($3.5/mmbtu) Ravva satelite($4.3/mmbtu) LNG (long term SPA-$3.86/mmbtu) LNG Spot Cargo $10 to 17/mmbtu)

Need for Regulator

Transportation disparity

Gas HVJ-$ 0.7/mmbtu

Regional System-$0.15/mmbtu

Petroleum Products- Pipeline 70% of Railway tariff

Road Transport- 2.5 to 3 times of Pipeline tariff

Government decided to dismantle APM and set up independent Regulatory Authority through a Gazette Notification issued in 1997

Need for Regulator

Vision behind APM dismantling

A free and competitive market would emerge benefiting both consumers and the petroleum industry

Domestic industry becomes more competitive by improving its productivity and efficiency

Reduction and phasing out subsidies leading to economic pricing of hydrocarbon commodities

Reduction in unproductive usage

Provision of subsidies through fiscal budget would be more transparent

Petroleum & NG Regulatory Board Act 2006

•PNGRB bill cleared by Rajya sabha on 2nd march 2006 & Lok Sabha on 21st March 2006

•Assent of president granted on 31st March 2006

•Bill became an act, through a gazette notification dated 3rd April 2006(19 of 2006)

•Act notified by the Government on 1st October 2007

Government Policies

Regulatory Scenario

Petroleum & Natural Gas Regulatory Board Act

Policy for marketing of transport fuels

Policy on NG Pipelines and CGD networks

Product Pipeline Policy

Policy on Refining

Objectives of the Board

Regulate refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas (P,PP&NG)

Protect the interests of consumers and entities

Ensure uninterrupted and adequate supplies in all parts of the country

Promote competitive markets

ProcessingStorage

Marketing & SaleDistribution

Transportation

Refining

Constitution of the Board

PNGRB has a Chairperson and four MembersPNGRB has a Chairperson and four Members

Sh. L.K. SinghviSh. L.K. Singhvi

Member (Commercial)Member (Commercial)

Ms. Sudha MahalingamMs. Sudha Mahalingam

Member (Distribution)Member (Distribution)

Sh L. MansinghSh L. MansinghChairpersonChairperson

Sh. B.S. NegiSh. B.S. NegiMember (Infrastructure)Member (Infrastructure)

Dr. YPC DangayDr. YPC Dangay

Member (Legal)Member (Legal)

Activities under purview of PNGRB

Enforce retail & marketting service

obligation

Monitor prices & prevent restrictive

trade practices

Register & Authorise entities

Declare pipeline as common / contract

carrier

Perform other functions entrusted

by Central Government

Protect consumer interest by fostering

fair trade & competition

Regulate access & transportation rate

on common / contract carrier /

CGD network

Ensure adequate availability, and

equitable distribution

Functions of the Board

Lay down technical standards /

specifications

Maintain databank of information

Functions of the Board

protect the interest of consumers- foster fair trade and competition

register entities to–Market, notified P,PP&NG Establish LNG terminalsEstablish storage facilities for P,PP&NG

Authorize entities to – Lay, build, operate or expand a common

or contract carrierLay, build, operate or expand a CGD

network

Functions of the Board

declare pipelines as common carrier or contract carrier

 regulate, by regulations-Access to common carrier

or contract carrierTransportation tariffAccess to CGD network

Functions of the Board

in respect of notified P,PP&NG – – Ensure adequate availability– Ensure display of prices at retail outlets– Monitor prices, transportation rate– Prevent restrictive trade practice – Secure equitable distribution for P,P&NG– Provide by Regulation and enforce Retail service obligations for entities Marketing service obligations for ROs

Functions of the Board

Maintain a data bank

Lay down Technical standards and specifications including safety standards(T4S)

Levy fee and other charges

Other functions as entrusted by the Central Government

Progress so far….

Advisory Committees constituted as part of consultation process– To review the Technical standards and

specifications including safety standards (TSSSS) for the downstream oil and gas sector• Divided into ten sub committees in various activities of

downstream oil & gas sector including a sub committee on Third Party Conformity Assessment, strategic Storage and Disaster Management

– On coverage of domestic PNG connections to serve as service obligations for CGD networks

– On financial parameters (including net work tariff) for CGD networks

– On Quality of Standards to serve as service obligations for CGD networks

Progress so far….

Regulations notified so far:– Appointment of Consultants– Meetings of the Board– Conduct of Business, receiving and

investigation of Complaints– Levy of fee and other charges– Authorization of CGD networks– Exclusivity on CGD Networks– Tariff determination for CGD Networks

PNGRB – beneficial to consumers

Better service through competition

To get access to P,PP&NG

Safety in Services

Price display – Mandatory

Retail service obligations – quality of products & services

Complaints redressal

Code/standards/best practices to-

Improve quality of products & services

Ensure safety

PNGRB – beneficial to consumers

Environmental benefits - use of

PNG/CNG

Genuine price – market determined

Economy in transportation – regulator

decides tariff by regulation

Regulator to have least discretion and

maximum transparency- leading to

high degree of consumer confidence

PNGRB- Conducive to Investment

No monopoly

Foster fair trade

Create competition

Selection of entities on transparent manner –

rules of the game are pre determined by

regulations

Determine tariff by regulation

Pipelines as common carrier or contract carrier

Open access to pipeline system and CGD

Access code by regulation

Infrastructure status to pipelines and CGD

Market determined pricing

Access to information – Registration,

authorization, Dispute resolution etc

FDI- 100% allowed

Independent Regulator – The PNGRB

Fair chance of selection/success

PNGRB- Conducive to Investment

PNGRB- Conducive to Investment

Unbundling

Affiliate Code

Nascent gas market – First mover advantage

New Gas finds

Additional Gas sources

CBM

Insitu gasification – coal/lignite

Bio gas, Hydrogen

LNG imports, LNG by tankers

Gas from stranded/isolated, marginal fields

PNGRB- Conducive to Investment

Level playing field for all entities

Dispute resolution made easy-

Dispute between entities – PNGRB to

resolve

Appeal to Appellate tribunal against

PNGRB decision

Appeal to Supreme court against the

decision of Appellate tribunal

PNGRB- way forward& issues

Pricing

P,PP&NG distribution

Subsidy Management

Mandating T4S

Determine pipeline system capacity &declare

common carrier/contract carrier

Open access & access code

Gas availability – New sources

Market development stage

MARKET DEVELOPMENT STAGE

Govt. Controlled

Liberalized

Mature

Nascent

OIL

GAS

MARKETS

MARKET OPENING

PNGRB- way forward& issues

Gas trading

Pipeline capacity trading

How to include P,PP&NG storage, Aviation

station and LNG regasification terminal

within authorization

Exclusivity (marketing, infrastructure)

Existing entities (Pipelines and CGD)

Unbundling

Affiliate code of conduct

IMPLEMENTATION OF PNGRB ACT

Board is to regulate by regulation• Competition in the market place with minimum Competition in the market place with minimum

discretion and maximum transparency.discretion and maximum transparency.

• Authorization for pipeline and CGD through Authorization for pipeline and CGD through

competitive bidding processcompetitive bidding process

• Exclusivity period for Marketing and Exclusivity period for Marketing and

Infrastructure development definedInfrastructure development defined

• Tariff Fixation- new project by competitive Tariff Fixation- new project by competitive

bidding ( for existing projects-Model defined)bidding ( for existing projects-Model defined)

IMPLEMENTATION OF PNGRB ACT

• Bidding and evaluation criteria – transparentBidding and evaluation criteria – transparent

• Open access for common carrier well definedOpen access for common carrier well defined

• Pipeline capacity determination – uniform for all Pipeline capacity determination – uniform for all

• Technical standards and specification including Technical standards and specification including

safety standards – uniform for all entitiessafety standards – uniform for all entities

• In respect of notified P,PP, & NG – Product In respect of notified P,PP, & NG – Product

availability , Market Display, Market Service availability , Market Display, Market Service

Obligation & Retail Service obligationObligation & Retail Service obligation

• Unbundling- Affiliate codeUnbundling- Affiliate code

Thank You