The Delhi High Court has finally set the seal on the most contentious dispute in recent memory over the powers and functioning of a regulatory body in the country. The court’s judgment last week that the Petroleum and Natural Gas Regulatory Board (PNGRB) did not have the authority to grant licences for laying city gas distribution (CGD) networks has only formalised what was known all along — that the board did not have the requisite powers to discharge its core function, a fact that the government itself admitted readily in the court.
For over two years now, the board has functioned in a constitutional vacuum because a critical part of the PNGRB Act had not been notified by the government. This is Section 16 which states that no entity can lay, build, operate pipelines or city gas networks or expand their network without the permission of the regulator. Since October 1, 2007, when the board came into being, the absence of Section 16 has left a huge question mark dangling over the regulator’s powers although the Ministry of Petroleum & Natural Gas had chosen rather discretely not to challenge its legitimacy directly despite frequent friction between the two.
The Delhi High Court’s judgment, interestingly, comes in response to writ petitions that challenged the “illegal and arbitrary” functioning of the board, one filed by a voluntary organisation in the public interest and the other by an aggrieved gas distribution company. What is clear is that the absence of Section 16 would not have mattered so much had the board’s chairman, Lavanyendu Mansingh, not overreached himself. Apart from abrasive encounters with the ministry, discord within the five-member board over the autocratic functioning of the chairman often spilled into the public domain specially when Mansingh decided to delegate to himself the key powers of other members over their strong protests.
The court’s finding that “the delegation of essential and core functions to the chairman is clearly contrary to the letter and spirit of the PNGRB Act” and that “a collective decision-making process by the Board has been reduced to a single man’s decision, namely, the chairman,” is coming in handy for a government determined to rein in a belligerent regulatory chief.
Well-informed sources say that the government is now ready with close to a dozen amendments to the PNGRB Act that will strip the board of significant powers. A few of the proposed amendments could be put down to a sanitation process that will ensure that the board, specially its head, is not allowed to take arbitrary and biased decisions and that the principle of collective decision-making is not violated. As such, one of the amendments will ensure that Section 58 is tightened so that provision for delegation of powers does not extend to the core powers of the board to issue authorisations.
The rest of the changes that are in the offing clearly reflect the government’s unease with its experience of regulation in the sensitive petroleum and gas sector, specially over repeated attempts by PNGRB to intrude into the policy sphere. A thorny issue is the Administered Price Mechanism or APM by which the government controls the price of fuels even if officially APM was abandoned in 2002. The fact is that the regulator has no jurisdiction over petroleum products because the government has so far not notified products under the PNGRB Act. Yet, the board used a provision on consumer protection in the Act to send notices to the government and state-owned oil marketing companies for selling petrol and diesel at below cost based on a complaint from private oil retailers!
This is the second time that the board has entertained such a complaint, although the government and its oil companies maintain that these products are clearly out of the jurisdiction of the regulator. The complaint which was filed by Reliance Industries, Essar Oil and Shell India said that the sale of petrol and diesel at subsidised rates by the public sector companies had put their retail networks out of business.
This has hardened the ministry’s view that the PNGRB Act should be amended to ensure that government policies and actions taken by public sector companies to comply with such decisions do not come within the purview of the board. So even if notification of products becomes inevitable at some stage as it would, the ministry wants to make it certain that products will be notified only for specific purposes. In other words, the PNGRB will have no say in the pricing of these sensitive products. It is, therefore, significant that one of the primary amendments it is proposing is a new nomenclature for the board. To ensure that the regulator keeps its nose out of the refining and processing of petroleum, the ministry wants to remove any mention of petroleum in the Act. Its justification for this radical change: “Petroleum” as defined in the Act was intended to mean only crude oil. Since transportation of crude is an upstream activity this would not fall within the purview of the Act. Hence, it is proposed to remove all references to “petroleum” from the Act.
The ministry’s wariness stems from its perception of PNGRB as a predatory regulator. It cites the attempt by the board to bring even LNG terminals under its jurisdiction as one such example, although under the current dispensation it is only expected to maintain a register of such facilities. Existing LNG terminal operators — there are three — have complained about intrusive regulation.
At the end of 27 months, PNGRB, which is among the best paid of regulators, has very little to show for itself. Much of its energy over this period has been spent in picking on existing CGD players, specially public sector companies over the issue of authorisation, although some have been operating for over a decade and were mandated to do so by the Union government — and at least in once case by the Supreme Court of India. Just six cities have been bid out so far while trunk pipeline projects have not got off the ground. Already, the government has struck back at the regulator by proposing to set up a National Gas Highway Development Authority (NGHDA) to fast track a gas grid for the country, a parallel authority that will clearly undercut PNGRB. The new authority will have the sole powers to authorise trunk pipelines while the board will be left with jurisdiction over product pipelines alone.
2009 has not been a particularly happy year for the ministry. Both its upstream and downstream regulators have been mired in raging controversies that have affected the credibility of their office. While the Directorate General of Hydrocarbons (DGH) has been accused of taking favours from India’s biggest oil refining company and was also found to have misrepresented the case on a CAG audit of the capital expenditure shown by RIL to develop its DC 6 field, PNGRB’s roster of sins includes a number of regulations and directives that have ignored consumer interests. A former petroleum ministry official says PNGRB has ignored a cardinal rule: Regulators exist to protect consumers. And some consumers, it is accepted the world over, need more protection than others. PNGRB has instead been focused on protecting corporate interests.
But is that an excuse for throwing the baby out with bath water? The most ominous of the proposed changes is a provision that will allow the government to supersede the board in the “larger public interest”. That somehow does not inspire confidence in the government or the regulatory process.
