3.

REGULATIONS IN CGD: DEVELOPMENTS AND CRITIQUE

3.1 PRE-PNGRB ERA

Till 2007, the CGD sector in India was governed by Government of India and MoPNG.
However, to increase the private participation and augment investors confidence, an independent
regulator for the downstream sector, Petroleum and Natural Gas Regulatory Board (PNGRB)
was established in 2007.
Historically, the natural gas market was entirely serviced through the PSUs with a direct control
of the central government. The major initiative for CGD development in the country was
undertaken by GAIL which started a pilot project at Delhi, Mumbai and Vadodara in 1992 for
promoting CNG as an automobile fuel. The Government of India and MoPNG has initiated and
driven the CGD progress in the country prior to the establishment of the regulator.
The CGD business in India was initiated in 1880 with the inception of Calcutta Gas Company.
The natural gas distribution business in India was also established at Mumbai in 1990, Vadodara
in 1972 and Okhla, Delhi in the past. However, the growth of CGD sector did not attain the
critical mass owing to the lack of infrastructure and reluctance on the part of end users for fuel
conversion.
The primary impetus for progress of CGD sector in India was driven by the judiciary mandate
for the enforced conversion of public transport fleet into CNG at Mumbai and Delhi. The high
levels of pollution in the cities and the lower quality of liquid fuels were the catalyst for the
mandate which accelerated the expansion of CNG in country.
Once the CGD sector gained momentum in the country, the central government authorized
several CGD entities for CGD operations in particular Gas. A total of 11 companies were
authorized for 21 GAs by the central government. The entities authorized by central government
include Indraprastha Gas Ltd. (IGL), Mahanagar Gas Ltd. (MGL), Maharashtra Natural Gas Ltd.
(MNGL), Central U.P. Gas Ltd. (CUGL), Bhagyanagar Gas Ltd. (BGL), Sabarmati Gas Ltd.
(SGL), Green Gas Ltd., Gail Gas and Aavantika Gas Ltd.

3.2 NEED FOR THE INDEPENDENT REGULATORY BODY

Prior to PNGRB, MoPNG was responsible for authorizing the CGD entity for a particular city.
With MoPNG deciding the CGD authorizations, it was alleged that public players would get
preference over the private players. An independent regulator was expected to remain neutral and
increase the investors confidence in the CGD sector.

3.3 PNGRB EMERGENCE

PNGRB was established under the ambit of the Petroleum and Natural Gas Regulatory Board
Act, 2006. The PNGRB Act was preceded by two major bills the Petroleum Regulatory Board
Bill, 2002 and the Petroleum and Natural Gas Regulatory Board Bill, 2005.
The Petroleum Regulatory Board Bill was introduced in Parliament on May 6, 2002 which was
then referred to the Parliamentary Standing Committee. The standing committee gave its nod for
the bill subject to the recommendations and changes. The recommendations were primarily
specific to the natural gas segment wherein provisions essential for handling specific problems of
natural gas segment was incorporated.
The amended bill was introduced in the parliament in 2003 with appropriate provisions related to
affiliate code of conduct, pipeline access code, concept of contract carrier, marketing service
obligations of CGD entities and methodology for fixation of transportation tariffs. However, the
Bill could not be taken up for consideration and it lapsed. The bill was again reintroduced in
December 2005.
The government enacted the PNGRB Act on March 31, 2006. Subsequently, PNGRB was
constituted under the Act on October 1, 2007. (InfralineEnergy, 2011)

3.4 ROLE OF PNGRB

PNGRB was established to regulate the refining, processing, storage, transportation, distribution,
marketing and sale of petroleum, petroleum products and natural gas. The primary objective of
PNGRB is to protect the interest of consumers and entities engaged in specified activities, to

ensure uninterrupted and adequate supply of natural gas and to promote competitive markets.
However, the E&P activities are not under the purview of PNGRB.
3.4.1

Functions of PNGRB

Protect the interest of consumers by fostering fair trade and competition amongst the entities
-

Ensure adequate availability of natural gas

Monitor price of PNG and CNG

Prevent restrictive trade practices in CGD

Secure equitable distribution of natural gas

Authorization and Registration of CGD Entities

Declaration of pipeline as common carrier or contract carrier

Maintain a data bank of information on activities relating to petroleum, petroleum products

and natural gas;

Levy fees and other charges as determined by regulations

Ensure adherence to service obligations

Lay down the technical standards and specifications including safety standards

Resolve disputes amongst the entities and between entity and consumer

3.5 IMPORTANT REGULATIONS BY PNGRB

3.5.1

PNGRB (Access Code for City or Local Natural Gas Distribution Networks)
Regulations, 2011

The regulation defines the contract between the authorized entity and the shipper and applies to
the authorized CGD entity immediately after the end of marketing exclusivity period.
The authorized entity is required to declare the entry point and exit point capacity for open
access 180 days prior to the end of the marketing exclusivity period.

The regulation necessitates that the gas accounting is required to be done on a daily basis in
energy terms.
The charges which are to be paid by the shipper to the authorized entity includes network tariff,
compression charge, overrun charge, system imbalance charge, off-spec gas charge, applicable
taxes and any other mutually agreed charge in the access arrangement.
3.5.2

PNGRB (Authorizing Entities to Lay, Build, Operate or Expand City or Local

Natural Gas Distribution Networks) Regulations, 2008

The regulation defines the framework for CGD network development in a particular GA. It
determines the modes of initiation of proposal, public consultation and the mechanism for
initiating the CGD bidding procedure. The bidding criteria are lowness of network tariff,
lowness of compression charge for CNG, highness of inch-km of steel pipeline and highness of
domestic connections.
3.5.3

PNGRB (Exclusivity for City or Local Natural Gas Distribution Network)

Regulations, 2008

The regulation applies to the authorized entity developing the CGD network. The rationale
behind providing exclusivity are incentivizing investments, allowing time for volume build up
and gas ramp-up and making the authorized entity solely responsible for CGD developments.
The authorized entity is given an infrastructural exclusivity of 25 years. The marketing
exclusivity wherein the network is exclusive from the purview of contract and common carrier is
of 5 years for an entity which is authorized by the bidding process. The entities authorized under
Section 17 and 18 are given a marketing exclusivity of 3 to 5 years depending upon the operating
period of such entities.
3.5.4

PNGRB (Technical Standards and Specifications including Safety Standards for

City or Local Natural Gas Distribution Networks) Regulations, 2008

The regulation specifies that the design, materials, equipments, welding, fabrication, installation,
testing, operation and maintenance of the CGD network needs to be done in accordance with the
requirements of ASME.
The regulations specify the technical standards and specifications including the safety standards.
The regulation is instrumental in minimizing the hazards and risks in operation and maintenance
of CGD networks.
3.5.5

PNGRB (Code of Practice for Quality of Service for City or Local Natural Gas
Distribution Networks) Regulations, 2010

These regulations lay down code of practice for promoting reliable service to consumers and the
public and obligations of consumers. The regulation necessitates the entities to display the
comprehensive procedure and all necessary information for obtaining the PNG connection on
available platforms such as internet and newspaper.
3.5.6

PNGRB (Determination of Network Tariff for City or Local Natural Gas

Distribution Networks and Compression Charge for CNG) Regulations, 2008.

3.5.7

Salient features

Service Obligations

Exclusivity

Level Playing Field

Competition and Efficiency

Transparency

Conflict Management

Safety Maintenance

Quality Assurance

3.6 POST PNGRB: STATUS SO FAR

3.6.1

Challenges faced by PNGRB

Formation of PNGRB lead it to the challenges of fixing pipeline tariffs, identifying regions
needing gas pipelines and awarding contracts, ensuring transporters' service quality, allowing
third-party access to the existing pipelines and ensuring fair play in a sector naturally prone to
monopolies. Besides, since pipeline infrastructure gives an edge to the first entrant, the regulator
has to be extra careful in ensuring access to subsequent players to pipelines.
These functions can be performed only from a position of strength and utmost vigil, as operators
might tend to take advantage of regulatory arbitrage that is common in a sector regulated by a
central agency and is operating in far-flung areas. Often, operators might be tempted to start
work with a mere no-objection certificate from a local authority without PNGRB's mandate.
Such instances are, to some extent, responsible for the delay in empowering the Board.
The draft license rule issued by the Board for companies laying gas pipelines resolved a
longstanding issue of the status of entities like Indraprastha Gas Ltd, which started operations
with the central government's permission before the Board was set up, by exempting them from
the need for a fresh PNGRB authorization. But the Board will monitor the performance of these
entities in laying pipelines. All new entrants in city gas distribution and transportation of natural
gas will need the Board's clearance.
The real challenge is the implementation of these norms, for which the regulator would need a
system to redress disputes and solve grievances in addition to a strong field force. Despite some
teething problems, the Board's beginning appeared to be promising. (Gireesh Chandra Prasad,
2010)

3.6.2

Notification of Section 16

Fresh from receiving full powers, oil regulator PNGRB invited bids for giving licenses for
retailing CNG to automobiles and piped cooking gas to households.

Nearly three years after it came into existence, the government notified a crucial section that give
the regulator explicit powers to issue city gas distribution licenses. The Section 16 of the
Petroleum and Natural Gas Regulatory Board Act of 2006 was notified with effect from July 15,
2010. The section gives PNGRB powers to authorize companies to retail CNG to automobiles
and pipe cooking gas to households.
PNGRB, however, did not feel constrained by absence of Section 16 and held two rounds of
bidding for giving city gas distribution rights before the notification of Section 16 came into
existence. In March 2009, it conducted the first round for six cities. In the second round in
August 2009, PNGRB invited bids for seven cities, including Ghaziabad.
Indraprastha Gas Ltd, which claimed it had central government and Supreme Court authorization
for retailing CNG and piped gas in Ghaziabad, challenged in the Delhi High Court the PNGRB's
authority to issue licenses in absence of the Section 16. The HC in January ruled that PNGRB
had no powers to issue city gas authorization, leading to scrapping of second round. After the HC
ruling, the authority to issue CGD licenses fell on the central government which authorized
winners of the first round of auction conducted by PNGRB and explicitly gave the license for
Ghaziabad to IGL.
Armed with the notification of Section 16, which empowered the downstream oil regulator to
issue authorization for city gas distribution (CGD) licenses, the regulator came out with a third
round of auction. (The Economic Times, 2010)

3.7 CRITIQUE

Inadequate Marketing Exclusivity

Authorization of Pre-PNGRB CGD Entities

Notifications of Section 16

Bidding Issues

Clashes between PNGRB and Government

PNGRB Role Ambiguity

References:
India. Petroleum and Natural Gas Regulatory Board Act 2006. New Delhi: Petroleum and
Natural Gas Regulatory Board.
India. PNGRB (Access Code for City or Local Natural Gas Distribution Networks) Regulations
2011. New Delhi: Petroleum and Natural Gas Regulatory Board.
India. PNGRB (Authorizing Entities to Lay, Build, Operate or Expand City or Local Natural Gas
Distribution Networks) Regulations 2008. New Delhi: Petroleum and Natural Gas Regulatory
Board.
India. PNGRB (Code of Practice for Quality of Service for City or Local Natural Gas
Distribution Networks) Regulations 2010. New Delhi: Petroleum and Natural Gas Regulatory
Board.
India. PNGRB (Exclusivity for City or Local Natural Gas Distribution Network) Regulations
2008. New Delhi: Petroleum and Natural Gas Regulatory Board.
India. PNGRB (Technical Standards and Specifications including Safety Standards for City or
Local Natural Gas Distribution Networks) Regulations 2008. New Delhi: Petroleum and Natural
Gas Regulatory Board.
InfralineEnergy. (2011) City Gas Distribution in India: Demystifying the Opportunities, Growth
and Investment Potential. New Delhi: Infraline Technologies (India) Private Limited
Prasad, G. C. (2010) Real challenge awaits PNGRB. Financial Express. Aug 9. Available from:
http://archive.financialexpress.com/news/Real-challenge-awaits-PNGRB/657713 [Accessed: 12th
Nov 2014]
The Economic Times. (2010) PNGRB invites bids for retailing gas in 4 states. July 28. Available
from: http://articles.economictimes.indiatimes.com/2010-07-28/news/27589301_1_pngrb-cgdcity-gas [Accessed: 5th Nov 2014]

India. PNGRB (Determination of Network Tariff for City or Local Natural Gas Distribution
Networks and Compression Charge for CNG) Regulations 2008. New Delhi: Petroleum and
Natural Gas Regulatory Board.