Energy Conclave 2010, IIT Kanpur

International Symposium on
New Paradigms for Energy Policy and Regulation
8th January 2010

Regulatory Framework in
Petroleum & Natural Gas
Sector

L. Mansingh, Chairperson
Petroleum and Natural Gas Regulatory Board
http://www.iitk.ac.in/reg
Top Primary Energy Consuming Countries 2005

Total World Energy Consumption: 10537 mtoe

2500 2337

5th
largest energy consumer (Share 3.7% 2000
1554 Fig. in MTOE
of global energy) 1500

Per capita energy consumption - about 1000

680
525
387
one third of world average 500 324 318

0
Energy consumption projection(2031-32) USA China Russian Japan India Germany Canada

to grow at 5 % CAGR (8% GDP growth) Fed

as per Integrated Energy Policy Per-capita Energy Consumption

3.4% CAGR upto 2025 (GDP: 5%)
Energy import dependence is 30% (26% kgoe 7794
on account of oil & 4% for Coal + 8000
Power) and is likely to climb to 40-45%
6000
by 2025
Oil import dependence is around 72% 4000
currently. Likely to go upto 90% level 1674 1138
2000 512 1068

0
World US India China Brazil

Source Energy Information Administration (EIA)

Primary Commercial Energy Mix

World Nucl
Oth Oth
Nucl 8%
World
2003 6%
8%
5% Oil 2030
10517 Oil 33%
18040 mtoe
38%
mtoe Coal Coal CAGR: 2%
24% 27%

Gas Oil& Gas continue

Gas to play major role
26%
24%

India Oth
Nucl2%
Oth
Nucl 2%
6%
India
2003-04 2% Oil
2031-32
Oil 29%
327 36%
1651 mtoe
mtoe Coal CAGR: 6.2%
51% Coal
Gas
51%
Gas 12% Coal & Oil continue to
9% play major role; Gas is
emerging

Source World: EIA-2006; India: IEP 2006

Import Dependency of Crude & Gas

Oil Import dependency for India is about 71%

compared to 67% for US
China fares better in oil import dependency at
51%
Gas accounts for about 25% through LNG
imports
Gas demand is expected to be about 390 by
2025 and 500 MMSCMD by 2030
Crude Oil Demand, Production & Import Trends

MMT

300 230

200
133
107 190
100
75 100
32 33 40 40
0
2001-02 2007 08 2011-12 2031 32
Oil Demand
Production from existing fields & discoveries
To be met from imports & new discoveries
Refineries & Product Pipelines

Refining
Refining Capacity:178 MMT

178 MMTPA

Product Product Pipelines Length: 12017 KM

Pipelines

12017 KMs
68.17 MMTPA
Refineries in India

Bhatinda
Existing (9.0)
Ongoing/Planned Panipat
(6.0), (9.0) Digboi
Bongaigaon (0.7)
Mathura (2.4)
(8.0)
Guwahati Numaligarh
Barauni (1.0) (3.0)
(6.0)
BINA
Baroda (6.0)
Jamnagar Haldia
(33.0, 29.0, 10.5 (13.7) (6.0), (1.5)
Paradip
Mumbai (15.0)
(12) (5.5) Visakh
(2.4) (7.5, 7.5) Nos MMTPA
IndianOil 10 60.2
Tatipaka
BPC 3 22.5
Mangalore (0.1, 0.1) HPC 2 13.0
(9.7, 5.3) ONGC / MRPL 2 9.8
Chennai
Reliance (Pvt.) 1 62.0
(9.5, 1.7) Essar(Pvt.) 1 10.5
Cochin Total 19 178.0
Narimanam
(7.5, 2.0) (1.0)
Expected Refining Capacity by 2011-12: 200-235 MMTPA
 Indias product demand & refining capacity

Gap between Refining Capacity & Demand

350
302
300

250
142
200
200 178
160
45 68
150 133 132

100

50

0
2008-09 2011-12 2016-17

Refining Cap Product Demand

Surplus refining capacity is expected to increase further by 2030

Source: XI Plan Demand

India will continue to be product surplus

Import/Export requirement for crude/products to be quite substantial
Distribution & Marketing Infrastructure

Marketing Infrastructure

Terminals/Depots No. 383

LPG Bottling Plants No. 170

Aviation Fuel Stations No. 126

Retail Outlets No. 37953

LPG Distributors No. 9366

SKO/LDO Dealers No. 6614

Long Term Demand Supply - Gas
 Key Decisions
APM Dismantling KeyTaken on APM dismantling
decisions

Crude oil producers/Refineries to be paid on import parity

basis from Apr02
Market determined prices for all products except LPG &
Kerosene from Apr02
Subsidies for LPG/Kerosene from fiscal budget on flat rate
basis since Apr02. Free float thereafter
 Key Decisions
Gas Pricing July 2005Taken
Govt.on APM dismantling
order

Consumer price of APM gas increased from 2050/mscm to Rs 3,200/mscm

linked to calorific value of 10,000 kcal/scm pending Tariff Comm.
recommendations
All APM gas to be supplied to only power & fertiliser sector consumers
against existing allocation as well as for specific end consumers under
court orders/small consumers having allocation upto 0.05 mmscmd
Rest of consumers to be supplied at market related price
APM gas price for other than power & fertiliser sectors further increased
from Rs 3,200/mscm to Rs 3,840/mscm wef June 2006
As against APM gas price of around $ 1.8/mmbtu, free market gas price
varies e.g., RLNG @ $ 3.86/mmbtu, PMT gas @ $ 4.75/mmbtu, spot LNG
purchases @ $ 7-8/mmbtu, etc.
New Exploration & Licensing Policy (NELP)

NELP introduced in 1999; so far VIII rounds held

Internationally competitive fiscal regime
Transparent Process, International competitive bidding
Contractual Fiscal Stability
Excellent Tax Incentives
Special deepwater concessions
Freedom to market production domestically
Policy on Refining

Administered Pricing Mechanism (APM) dismantled

for refineries in April 1998

Setting up of refineries de-licensed in June 1998

Refineries may be set up subject to meeting statutory

requirements

Private refineries by RIL and Essar set up in India

Others JV refineries are under implementation

Policy on Marketing of Petroleum Products

Marketing of petroleum products except

subsidized products allowed to private
companies
Marketing of Transportation Fuels authorised:
Subject to entities making investment or proposing
to invest Rs. 20 billion in exploration / refining /
pipelines / terminals /infrastructure etc.
Need for a Regulatory Body
16

India A Over Regulated Country but Existing Systems

Discretionary, Ineffective and Often Obsolete : Obstacle
to Growth & Initiative
Statutory Independent Regulators set up in the US
through Acts of Congress
In India, This Development Linked to Process of
Liberalisation for
Providing level playing field
Promoting Investment / FDI
Protection of Consumers Interest
More Effective Regulation
PNGRB Act, 2006 17

Enacted by Parliament in March06

All provisions (except Section 16) of the Act
notified w.e.f. 1.10.2007
PNGRB formally established w.e.f. 1.10.2007
One Chairperson and four full time Members
Basic Objectives
To protect the interest of consumers and entities
To ensure uninterrupted and adequate supply in all
parts of the country
To provide level playing field
To promote competitive markets
Salient Functions of the PNGRB
18

Fostering Register Authorize

fair trade & entities for- entities for-
competition
amongst marketing
petroleum,
Laying, building,
operating or
entities petroleum expanding a
common carrier
products &
natural gas or contract
carrier for
transportation of
natural gas or
establishing & petroleum
operating LNG products
terminals
Laying, building,
operating or
expanding city
establishing
or local natural
storage facilities gas distribution
network
Functions of the PNGRB (contd.)
19

Declaring In respect of Lay down

pipelines notified petroleum,
petroleum products technical
as & natural gas - standards &
common specifications
carrier or Ensure
including
adequate
contract availability safety
carrier & standards in
Monitor prices &
specify take corrective activities
access measures to
prevent relating to
code for restrictive trade
petroleum,
practices
allowing petroleum
access to Enforce retail
service products &
such obligations &
marketing natural gas
pipelines service
obligations
PNGRB - Major Tasks on Hand
20

Notification of Regulations
Declaring/Authorizing petroleum products &
natural gas pipelines and city gas distribution
networks on common carrier basis
Specifying market service and retail service
obligations to protect consumers interests
Fostering Fair Trade and Competition
Laying down Standards and Safety Norms
PROCESS OF FRAMING & FINALISING REGULATIONS
21

Draft Draft
Internal
Regulations Regulations
Deliberations
approved by posted in
in PNGRB
Board public domain

Comments
Open House
Open House from
with
on Final Draft stakeholders
Stakeholders
considered

Regulations
Notification in
finalized &
Legal Vetting Official
approved by
Gazette
Board
21
Regulations for CGD & NG Pipelines notified so far
22
Regulations for Principal
Regulations
notified on
Authorizing entities to lay, build, operate or expand CGD 19.03.08
Networks

Exclusivity for CGD Networks 19.03.08

Determination of Network Tariff for CGD Networks and 19.03.08

Compression Charge for CNG

Authorizing entities to lay, build, operate or expand natural gas 06.05.08

pipelines

Technical Standards & Specifications including Safety 27.08.08

Standards for CGD Networks

Affiliate Code of Conduct for entities in Transporting and 17.07.08

Distributing Natural Gas
Regulations for CGD & NG Pipelines notified so far
23

Regulations for Principal

Regulations
notified on
Access Code for common carrier or contract carrier natural 17.07.08
gas pipelines

Determination of pipeline tariff for natural gas pipelines 20.11.08

Guiding Principles for Declaring or Authorising Natural Gas 21.04.09

Pipeline as Common Carrier or Contract Carrier

Procedure for Development of Technical Standards and 14.05.09

Specifications including Safety Standards
Technical Standards & Specifications including Safety 11.11.09
Standards for natural gas pipelines
Authorisation for CGD Networks
24

Bidding Criteria - (weightage)

- Least PV of overall unit network tariff over economic
life of project - (40%)
- Least PV of compression charge for CNG over
economic life of project - (10%)
- Highest PV of inch-kilometer of steel pipeline
during exclusivity period - (20%)
- Highest PV of PNG domestic connections during
exclusivity period - (30%)
Authorisation for Natural Gas Pipelines
25

Bidding Criteria - (weightage)

- Least PV of unit tariff for 1st tariff zone over economic
life of project - (40% & 70% for pipelines < 300 KM)
- Least percentage increase for determining incremental
tariff for 2nd tariff zone - (20%; nil for pipelines < 300
KM & 30% for pipelines > 300 KM < 600 KM)
- Least percentage increase for determining
incremental tariff for 3rd and subsequent tariff zones -
(10% & nil for pipelines < 600 KM)
- Highest PV of natural gas volumes - (30%)
Exclusivity Criteria for CGD Networks
26

Two periods of exclusivity provided to promote flow of

investments
Exclusivity of infrastructure over its economic life of
25 years
Marketing exclusivity of 5 years after which 3rd
party access to the network for marketing of natural
gas would be available on payment of network tariff
Network Tariff to be generally decided on bid basis
Process for Grant of Authorization
Suo-motu by
Board
27
Open Advt. Firm-up 15
15 30 Invite Bids
EOI days
in paper for days Authorized days
Public Area 60 days
Consultatio (extendable by
n process 30 days)
Bid evaluation
No entity
gets
30 days
selected.
Reject Board may
the Grant of Authorization
go for re-bid
Proposal
90 days

Gas Tie-up
Consequen Post authorization
ce of monitoring of
Default & activities /meeting 30 days
Termination the service
of obligations/Quality Financial Closure
Authorizatio of Standard norms
n
GAs Covered Under Two Rounds of CGD Bidding
28

1st Round of Bidding 2nd Round of Bidding

Kota Ghaziabad
Dewas Allahabad
Kakinada Jhansi
Sonipat Shahdol
Meerut Yanam
Mathura Rajahmundry
Chandigarh
City Gas and CNG
29

Present Scenario
Total Number of CNG vehicles- 7 lakh
Number of entities 19
Number of GAs - 25
Future Scenario (next three years)
Total Number of GAs - 86
Expected CNG vehicles(Present Trend) - 25 lakh
Future Scenario (next five years)
Number of GAs 125
Expected CNG vehicles(66% of present trend)- 33 lakh
Future Scenario (next ten years)
Number of GAs 250++
Expected CNG vehicles(66% of present trend) 58 lakh
 30

30 December 2008
Oil Pipelines
in India 31
Jalandhar

Bhatinda Ambala
Roorkee
Sangrur Najibabad
Panipat
Meerut
Rewari Delhi NahorkatiyaTinsukia
Sanganer Loni Shahjahanpur
Mathura Siliguri Bongaigaon Digboi
Ajmer
Jodhpur Tundla
Chaksu Lucknow Numaligarh
Kanpur Jagdishpur Guwahati
Kot
Chittaurgarh Barauni
Sidhpur Ahmedabad Rajbandh
Kandla Ratlam
Mundra Navagam Budge
Jamnagar Koyali Maurigram Budge
Vadinar Indore
Dahej Ankleshwar Haldia
Hazira Manmad
Mumbai Mumbai Paradip
High Pune Secunderabad Vizag Existing
Uran
Product
Pakni
Hazarwadi Vijayawada Crude Oil
Mangalore Bangalore
Chennai On-going

Product
Sankari Asanur Crude Oil
Length- ~9893 Km. Karur Existing
Coimbatore Trichy
LPG 2126 kms (4.5 MMT)
Capacity- ~64 mmtpa Kochi
LPG
Madurai
Capacity utilization- > 78%
Players- IOCL, BPCL, HPCL, PETRONET,GAIL
FDI Policy
32

Exploration
Up to 100% FDI: Automatic route through Competitive bidding
Refining
Up to 100% FDI
Up to 49% FDI: if project taken up along with Public Sector
Undertakings
Marketing
Up to 100% FDI permitted in petroleum products marketing
Petroleum Pipelines
Up to 100% FDI: Under automatic route
Natural Gas Pipelines
Up to 100% FDI: Under automatic route
Estimated Investment in P&NG Infrastructure
33

Total about Rs.76,000 - 84,000 crore investment

is estimated to be required for setting up
Petroleum & Natural Gas infrastructure in next
five years -
Natural Gas Pipelines ~ Rs. 60,000 crore
CGD Networks ~ Rs.10,000 - 15,000 crore
Petroleum Product Pipelines ~ Rs.6,000 - 9,000 crore
 Competition as part of Licensing Conditions
34
Powers for Grant of Authorization for Transportation Pipelines
and CGD Networks with PNGRB
Concept of Natural Monopoly in the P & NG Infrastructure
Sector to avoid Stranded Assets and Optimization of
Capacity Utilization
For CGD Networks, while monopoly over network is for life,
commercial exclusivity limited to five years
After five years, network available to competitors on non
discriminatory basis to market gas on payment of network
tariff determined by Regulator
Network Tariff decided on bid basis for all new networks
Competition in Natural Gas and Product Pipelines
35
PNGRB empowered to declare any existing pipeline as
common/contract carrier for transportation of natural gas or
petroleum products
Under Government Policy and PNGRB Regulations, all
common carrier pipelines must have 33% for natural gas and
25% for products as common carrier capacity
All necessary facilities and equipments included in the
common/contract carrier pipelines to facilitate third party
non discriminatory access
With Emerging National Gas Pipeline Grid and Regional
Networks with Regulatory Framework, Foundation of the
Market has been laid
 Role of Markets in a Modern Regulatory
Framework
36

Competitive markets necessary pre-condition for a

modern regulatory framework
Facilitation of competitive market forces and prevention
of distortions and manipulations primary responsibility of
the Regulator
Section 66 of the Electricity Act, 2003 Regulator to
promote the development of a market (including
trading) in power
No such provision in PNGRB Act, 2006
Section 11(a) of the PNGRB Act :
The Board shall protect the interest of consumers by
fostering fair trade and competition amongst the
entities
 Development of Natural Gas Market
37
No market for gas in the country. A competitive market
would lead to
Price discovery
Optimal use of scarce energy resource
Optimization of infrastructure
Lead to flow of investment for E&P, development of
infrastructure for transportation and distribution
Bottlenecks
Government fixes prices and allocates gas
No trading can take place unless Government gets
out of price fixation and allocation
 Hurdles in the way of Development of a
Competitive Market in the Petroleum Products
38

Dominance of CPSUs in this market even after

opening up of the market
Government continues to determine price of
Petrol & Diesel marketed by CPSUs inspite of
formally abolishing APM
Heavy subsidization of Kerosene & LPG leading
to distortions in the product market
Existing transportation and storage infrastructure
owned by CPSUs without third party access
 Hurdles in the way of Development of a
Competitive Market in the Natural Gas Sector
39

Production, Supply and Distribution of Natural Gas

till now controlled by the Government with APM
price and allocation on case-to-case basis
APM Gas highly subsidized distorting market
forces as competitive has no access
New discoveries has brought in only one supplier
Even in this case Government have determined
price and allocation
 Development of a Competitive Market
40

Market forces should decide pricing and

allocation with Regulator preventing
manipulations / distortions
Specifications should be made uniform and
mandatory to facilitate trading and protect
interest of consumers
Active spot and future trading of Petroleum
Products and Natural Gas should be allowed in
conformity with guidelines and over-view of the
Regulator
 Steps initiated by PNGRB so far
41

Affiliate Code of Conduct

Entities required to maintain separate
accounts for different business sections
Prohibition of cross subsidization
Competitor cannot be treated less favorably
than ones own division / subsidiary
 Steps initiated by PNGRB so far
42

(contd.....)
Access Code (Natural Gas)
Provides third party non-discriminate Access to
Transportation and Distribution Network for Natural Gas at
tariffs fixed by the Regulator
Lays down technical parameters / obligations to maintain
surplus capacity to ensure availability of capacity to third
party
Technical specifications such as band of calorific value
lay down to ensure grid discipline
Grid Management System being finalized to ensure
smooth functioning of the Gas Grid
 Steps initiated by PNGRB so far
43

(contd.....)
Product Pipeline
Storage tanks at beginning and end point
and at storage depots being included in the
definition of pipeline for third party
discriminate access
Thank you