With a crucial section of the law yet to be notified, the petroleum and natural gas regulator is operating in a vacuum.
Regulators the world over are known to ruffle official feathers. Yet, seldom has a newly-formed regulatory body found itself so much at loggerheads with its parent ministry and government-promoted companies as the Petroleum and Natural Gas Regulatory Board (PNGRB). Since it came into being on October 1, 2007, the board has been involved in several critical issues that have the potential to alter the energy profile of the country. But its biggest battle is being fought over its own legitimacy.
The crux of the problem is a constitutional lacuna, the missing Section 16 of the PNGRB Act of 2006 which the government has failed to notify even a year after a five-member board was set up to regulate downstream activities in the oil and gas sector. Section 16, dealing with the critical issue of authorisation, states that no entity can lay, build, operate pipelines or city gas networks or expand their network without the permission of the regulator except in one instance — if they have been authorised to do so before the Act came into force. And Section 17 makes it clear that the central government is entitled to give such authorisation. In which case, the entities have to furnish details of their activities to the regulator within six months of it coming into force.
If the regulatory board is pretty much powerless without Section 16, it begs the question why the government did not notify it. The explanation that is commonly offered by the petroleum industry experts is that the government wanted to protect a clutch of public sector enterprises that have been set up as joint ventures with national oil companies or private companies. One such is Mahanagar Gas Ltd (MGL) in Mumbai, the oldest — it was set up in 1995 — and largest city gas retailer in the country that is jointly owned by Gail (India) and British Gas. Another is Delhi’s Indraprastha Gas Ltd (IGL) that started operations in 1998 as a joint venture of Gail, BPCL and the Delhi government.
Apart from the handful of joint ventures floated by central undertakings there are a host of players in Gujarat, some private and others set up in partnership with the Gujarat State Petroleum Corporation. A couple of other entities have also been authorised by Uttar Pradesh and Haryana. All this has resulted in a pretty kettle of fish for the regulator. While the Centre wants to draw a clear distinction between companies authorised by it and the ‘illegal entities’ operating or approved by state governments, the board had asked all entities to seek fresh authorisation by March 31 this year.
The Ministry of Petroleum and Natural Gas initially chose to ignore this requirement, presumably because Section 16 had not been notified. It was only when the board decided to put the screws on IGL, saying it should stop all incremental activities and curtail any expansion since it had no ‘proper authorisation’ that matters came to a head. IGL is important for several reasons. The publicly listed company not only boasts a 1,350-km network that supplies piped gas to around 125,000 domestic consumers but it also fuels over 230,000 motor vehicles with CNG in the National Capital Region (NCR). The government, therefore, moved quickly with a directive overruling the regulator, who, in turn, has refused to vacate its order.
The spat has turned into a protracted cat and mouse game between the government and regulator, the denouement of which could have serious repercussions on plans to set up city gas distribution (CGD) networks across the country. As it is, piped gas to several thousand consumers has been held up while plans to set up new CNG fuelling stations have also been stalled. Unless the question of existing entities is settled, there is no way the ambitious plan of bringing in investments of $10-15 billion into the sector over the next ten years can take off.
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IGL, according to a May 15 letter sent by the ministry to the regulator, is authorised to lay pipelines and expand operations not only in Delhi but also in the suburbs of Noida (Gautam Budh Nagar), Gurgaon and Faridabad. The board, however, has yet to accept this. PNGRB Chairman Lavanyendu Mansingh told this newspaper that “the areas claimed by entities have to be decided by us”. Besides, “entities that are seeking exclusivity need to come under a stringent screening process because we want to eliminate squatters.”
Environmentalists point out that IGL was set up in 1998 in the wake of a Supreme Court directive to the Delhi government to reduce pollution levels by switching all public transport to CNG fuel instead of diesel. In fact, the NCR’s Environment Pollution Authority has in its October 2008 report emphasised that only CNG buses should be allowed to ply in NCR in view of the phenomenal increase in the number of vehicles crossing the area — it is now 1.2 million — and is taking the matter to the Supreme Court again for directives on the supply and distribution of gas.
This has prompted IGL managing director Rajesh Vedvyas to seek permission yet again to expand operations. On November 7, he wrote to the regulator that “in the larger public interest, IGL must necessarily increase the number of CNG dispensing stations to cater to the ever-increasing number of vehicles in the NCR area” and also to respond to the demand for piped gas from consumers. Vedvyas pointed out that IGL has provided the necessary central government authorisation and also agreed to abide by the regulations on technical and safety standards laid out by the regulator.
What then is the snag? The board is insisting that it would recognise only a ‘specific and formal’ authorisation and is claiming exclusive jurisdiction to deal with the matter. This, according to Solicitor General Goolam E Vahanvati, is entirely wrong since there are no provisions in the law prior to 2006 which required the government to grant authorisation in a particular form or manner. He is also of the opinion that the board does not have the right to question or review the authorisation given by the central government.
It is learned that the board has sought an irrevocable undertaking from existing companies that entail binding performance guarantees among other conditions. Gas companies, for their part, maintain that this not required under the regulations. But the primary contention of entities that the board does not have any power to authorise any entity in the absence of Section 16 is endorsed by the Solicitor General, who says “the fact that Section 16 has not been notified is very significant.” As such, “the power of the board to grant authorisation itself has not come into force.”
| BATTLE FOR LEGITIMACY |
| * Petroleum and Natural Gas Regulatory Board Act notified in April 2006 |
| * Section 16 which gives the Board the powers of authorisation has still not been notified |
| * Five-member Regulatory Board begins functioning from October 1, 2007 |
| * Around a dozen existing companies come in conflict with regulator from April 2008 |
| * 71 Expressions of Interest (60 from RIL) for setting up city gas networks |
| * Central Government gives authorisation to 11 existing companies for 25 areas |
| * Despite letters from regulator, Section 16 not notified by government |
| * Regulator calls for bids for gas networks in 6 cities |
In his interview to Business Standard, however, Mansingh claimed that the authority of the board was no longer in question since 11 entities authorised by the government had applied to the board for clearance. This is a tacit acceptance of its authority, he says. Behind the scenes, however, the board is pressing the government for a special gazette notification on the controversial section although a laconic response from the government indicates that it is in no hurry to rectify the situation. It says the issue has been referred to the Ministry of Law and Justice.
But matters are clearly getting out of hand. While the regulator is focused on entities such as IGL and MGL, Gujarat is going ahead full steam with CGD networks across the state irrespective of authorisation. Analysts say the regulator and the government need to resolve the standoff quickly, especially since the board has called for the first tranche of bids for networks in six cities. But this move has only served to deepen dissensions within the board.