Regulatory ChallengesIndian Scenario

Regulatory Challenges

Index• Indian Oil & Gas sector Infrastructure• Market state of development• Government Policies • Global reference • India – a unique position• PNGRB Act 2006- Regulatory Board, Functions• Issues posing challenges

Indian Oil & Gas Infrastructure• Area – 3.3 million square km.• Sedimentary Basin – 3.14 million Square Km. Explored only

50%• Refining capacity – 148 MMTPA• Pipeline infrastructure

Natural Gas – 8000 km(including regional network) Product pipelines – 10000 kms

• CGD networks – 19 cities with gas 0.79 million house hold connected 0.40 million vehicle on CNG

* Total infrastructure is inadequate to meet the country’s requirements except oil refining

Market State of Developemnt

Govt. Controlled Liberalized

Mature

Nascent

OIL

GAS

MARKETS

MARKET OPENING

Government Policies• Refining sector – delicensed• Marketing of Petroleum Products policy

Investment of Rs 2000 crore in infrastructure allows marketing of transport fuels

FDI - 100% allowed• Petroleum Products pipeline policy

Upto 300 km- not common carrier 25% extra capacity for common carrier Crude oil pipeline excluded

• Gas Pipeline policy 33% extra capacity as common carrier Open access, unbundling and affiliate code

• Gas utilisation policy – in offing

U K Experience• Economic reform process (1980-1990)

Privatization of State utilitiesCreation of independent Regulators to take over the

responsibilities of erstwhile Ministries Overlapping and clashing of jurisdiction of several

bodies.• 1986-Allowed gas sales to large customers directly by

producers• 1988- Ofgem request BG to leave 10% for direct sale to

large customers• 1991- BG agrees to reduce market share by 40%• 1992- BG unbundles

U K Experience – Contd.• 1996-Domestic sector opened to other marketers,

max. penetration upto 20%• Utilities Act, 2000 – brought gas and electricity

regulators under single statute • Regulatory Reform Act, 2001 –

Eliminates burden of excessive regulations on participants in the market by reducing the cost of regulatory compliance.

Regulators to conduct regulatory impact assessment of existing rules before new rules are added or existing one are deleted

European Union Experience• European Union – 27 countries (2 without gas)

Each country has its own regulator in positionIn most of the countries market decides the priceOnly in a few of the countries regulator decides

the priceIn some countries Government continues to

decide the price with or without consulting regulator

• Most of the countries have electricity and gas under one regulator and in some countries regulator controls the utilities including water

US Regulatory Experience• Each of 50 states has its own regulator

dealing with intrastate networkFederal Regulator (FERC) is for interstate pipeline

network , regulates entire energy sectorMatured market with 350 distribution companies,

65 million customer, 10,000 gas supplier• Regulatory agencies - part of executive branch,

but not subjected to everyday political interference.

• Closely supervised by Congress which vets appointment, all rules presented to Congress, subjected to scrutiny through committee

Australia – Regulatory Experience

• The Commonwealth or Central Government – Regulate access to national networks

• The states regulate intra-state gas generation, distribution and retail

• Most states have multi-sector regulatory model for electricity, gas, water, transport .

• Central and State coordination helpful for inter connected networks– electricity & gas

India – a unique position– • Oil discovered in 1886 in North East• Oil & Gas – Central subject, yet the development

remained localized in areas of oil & gas finds• Actual demand picked up after Bombay High and

South Bassein finds were monetized – 1986 onwards

• Demand continue to overshoot the supply• Import of gas as LNG – 2004 at Dahej

• Adoption of any single model in totality will not work

Regulatory Board – Functions, Status

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

PNGRB Act 2006• Regulations Status- Seven nos. notified

Meeting of the Board – 26.11.2007Levy of fee and another charges- 26.11.2007 Conduct of business, receiving and investigation of

complaints- 30.11.2007Appointment of consultants –17.1.2008)Authorizing

entities to Lay, build, operate expand CGD network –19.3.2008

PNGRB Act 2006- Contd.Determination of network tariff for CGD –

19.3.2008Exclusivity for CGD –19.3.2008)• Draft Regulations- for public consultationsLay, build, operate and expand Common

Carrier/Contract Carrier Access Code Technical Specifications for CGDRegistration of entities for developing LNG

terminal, storage

Issues posing challenges• Approach to regulation- Separation of power Separation of power breaks down when any two or

three of the pillars of democracy – Executive, Legislature, Judiciary are combined

• Regulator to have Legislative powers - making regulationsExecutive powers – enforcement Judicial powers – adjudicate disputes

• Inter institutional bargaining is essential to secure liberty in a plural democracy

Issues posing challenges- contd. • Fundamental constitutional principles – separation of

power is an issue for regulator• Accountability of Regulator

To Parliament – Tabling of RegulationsTo Public – Public consultation process - comments

acknowledged and addressed• Segments amenable to competition (commodity) – light

handed regulations • Segments having monopoly elements (capacity) – close

regulations • Natural gas availability– Increasing gas supply sources

(CBM, In-situ gasification- lignite/Coal, Bio gas, Hydrogen, Gas Hydrates, Syngas, etc)

Issues posing challenges – contd. • CNG to include ANG• Fostering fair trade• Free and Competitive market – regulations with least

discretion and maximum transparency• No monopoly• Energy security- Domestic& International initiatives • Price disparity – commodity and transportation

Price determination by market forcesTariff determination by competitive bidding/regulations

• Technical Standards and Safety - T4S

Issues posing challenges – contd.• Pipeline and CGD as common carrier – capacity

determination• Open access to pipeline and CGD• Access Code – Pipeline capacity allocation, gas

quality, grid connectivity• Unbundling• Affiliate code of conduct• Exclusivity – marketing and infrastructure• Trading – commodity and capacity

develop infrastructure stabilize price

Examples• Selection of entities in a transparent way-

rules of the game pre determined by regulations

CGD authorisationPipeline authorisation• Tariff determination• Pipeline capacity determination• Retail Service Obligations• Market Service obligations

-- CGD

Let us begin

to

ResolveThe Issues posing challenges