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We may be concerned about environment, sustainable development and depleting resources but the fact that price of oil affects us the most cannot be turned down. Petroleum becomes the prime concern of every individual, be a common man or a rich man. This sector directly or indirectly effects every business operation and every government unit includes this agenda of petroleum in its manifesto. I don’t need to address the importance and benefits of petroleum sector in India, we run and live on it.

The problems that we face today is that despite of Petroleum and Natural Gas sector being the most profitable and the most known sector, remains judicially undeveloped when compared to the nuclear, electrical and coal sector of the energy. The prime issues of this sector which remains untouched is that the absence of competitiveness. Bill was introduced in the year 2005 to deal with issue. The bill was named as the Petroleum and Natural Gas Regulatory Board Bill (PNGRB), 2005 and bill was notified on 31^st March 2006.

The objective behind introducing the Petroleum and Natural Gas Regulatory Board Bill (PNGRB) was to establish a board to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum products and natural gas. The bill was introduced to protect the interest of consumers and entities, to ensure uninterrupted and adequate supply of the petroleum, petroleum products and natural gas in all parts of the world. The bill was introduced to promote competitive markets and for the matters connected with it.

Board

• Composition: The board according to Section 3 shall consist of a Chairperson, a member from the legal background and three other members.
• Qualification: According to Section 4 the Board shall consist of members from the field of petroleum and natural gas industry, management, finance, law, administration or consumer affairs.
• Qualification for a Legal Person: (a) he is qualified as a Judge of a High Court or (b) has been a member of the Indian Legal Service and has held a post in Grade I of that Service for at least three years.
• Term of Office: The term of the office will be 5 years or until they attain the age of 65, whichever is earlier. They cannot be re-appointed.

Registration and Authorization

The bill mandates the Board to appoint a Registrar to register down all the activities related to the Petroleum, Petroleum and Natural Gas. Under this act registration is compulsory for marketing and establishing any activity related to petroleum, petroleum products and natural gas. The registrar had been given power to make authorization for laying, building or expanding city or distribution network or any common carrier.

The registrar had been given power to register entities, to make authorization, to receive application and to grant the required permission. After the process is completed, it’s the responsibility of the registrar to make the authorization public.

Settlement of Disputes

The board will act as Arbitration unit where any matter related to Petroleum and Natural Gas agreements can be referred.

• Eligibility: The matter related to relevant agreements between (1) two or more entities, (2) an entity or any other person.
• Bench: The bench will comprise of a Legal Member and one or the other member as appointed by the Chairperson.
• Jurisdiction: The court will have power same as exercisable by the Civil Court. It can hear matters relating to refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas. This will include the service and quality of supply to the consumers and the entities and also matters related to registration and authorization.
• Power to Investigate (Settle Dispute): To investigate in the matter, the board can appoint a member of the Board as the investigating officer in any dispute.
• Appellate Tribunal: The appellate tribunal established under Section 110 of the Electricity Act, 2003 will have the authority to listen to matters in appeal from this Arbitration Center.

Finance, Accounts and Audit

The funds will come from the Central Government for paying in the salaries and allowances payable to the Chairman and the other board members and the administrative expenses including the salaries, allowances and pensions payable to the officers and employees of the board. All the grants, fees, penalties and charges received by the Board shall be credited to the Fund, apart from those received from sources approved by the Central Government. The creation of such a fund aims to make the Regulatory Board, financially independent of the Government, to an extent as otherwise the very purpose of setting up an independent regulator would be undermined. The Bill expressly empowers the Central Government to constitute a committee to determine the budgetary

Offences and Punishments

The Board under the act is empowered to levy fines for non-compliance with the regulations:

• Punishment for contravention of directors of the Board: Fine can be extended to 25 Cr and if the contravention keeps on continuing, the addition fine of 10 Lakh per day.
• Penalty for willful failure to comply with orders of Appellate Tribunal: Fine of Rs. One Cr for the first time, Rs Two Cr for the second one continuous neglect will result in fine of twenty lakh per day.
• Punishment for laying, building, operating or expanding a common carrier or contract carrier without authorization: Imprisonment upto three years or fine upto 25 Cr rupees.
• Punishment for willful damages to common carrier or contract carrier: Imprisonment upto three years or fine upto 25 Cr rupees.

Features of the Bill

The present act will regulate all the downstream activities such as the refining, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas.

Framework for Transportation and Marketing

• The bill specifically under the Right of First use section specifies that the entities engaged in marketing and transportation will have to separate the two activities within a specified period and they have to comply with the affiliate code of conduct. The provision seeks to address issues like transparency, conflict of interest and public trust.
• Pipelines to be used for transportation will be common or contract carriers. According to the Act, “common carrier” means such pipelines for transportation of petroleum, petroleum products and natural gas by more than one entity and “contract carrier” means such pipelines for transportation of petroleum, petroleum products and natural gas by more than one entity pursuant to firm contracts for at least one year as may be declared or authorised by the Board.
• An entity interested to lay or expand a pipeline or gas distribution, that entity needs to take proper authorization from the registrar of PNGRB.
• Any entity that lays, operates or expands the pipeline or gas distribution network will have the right of first use. Other entities need to pay charges to the owner of the pipelines for use and the charges will be determined by the board.
• Entities involves in marketing needs to fulfill certain obligations specified by the Board which may include setting up marketing infrastructure and retail outlets in remote areas, maintain minimum stock of petroleum and petroleum products or of a local distribution entity to supply natural gas to consumers.
• Dealers and distributors are under an obligation to maintain supplies to consumers throughout the working hours and of specified quality, quantity and to display of maximum retail price of notified petroleum, petroleum products and natural gas including CNG and other obligation specified by the Board.

Power of Central Government

Petroleum and Natural Gas sector had been a great concern in the past. The Government while making the bill, kept the same in mind and following this gave huge power to override the decision made by this Board.

• The Central Government may, from time to time, by writing issue to the Board such directions as it may think necessary in the interest of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States or public order. The decision of the Central Government whether a question is one of policy or not shall be final in all matters.
• The reason behind keeping this provision is that if the government finds it necessary or expedient so to do in public interest or for maintaining or increasing supplies of petroleum, petroleum products or natural gas or all or any of them or for securing their equitable distribution and ensuring adequate availability, issue policy directives to the Board in writing and such policy directives shall be binding upon the Board.

Transportation through Pipelines

Access to Transmission Pipelines

The major problem which came into existence before this act came into picture was the Construction of Pipeline. Constructing a pipeline is very capital intensive process and it’s not economically viable to setup more pipelines in a place where one pipeline already exists. Pipelines act as natural monopolies. The act will grant access to the other uses to use the pipeline already installed on payment basis. All transmission pipelines (except pipelines to a specific customer and upstream pipelines) will be either common or contract carriers.

Authorization for laying a pipeline will be done through a competitive bidding process. Parties will be given three months to declare interest in laying the pipeline. The total capacity of the pipeline will be that of the proposer as well as contracts entered into. The proposer will have to satisfy the conditions that in future, capacity can be increased by 25% within a 120 day notice period. This excess capacity will be available for use on a non-discriminatory, open access, first come first serve basis.