Energy Conclave 2006 organised by IRADE 26th July, 2006 LEGAL AND REGULATORY FRAMEWORK FOR THE PETRO - PowerPoint PPT Presentation

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Energy Conclave 2006 organised by IRADE 26th July, 2006 LEGAL AND REGULATORY FRAMEWORK FOR THE PETRO

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Authorise entities to lay, build, operate or expand a common carrier or contract ... Same Government authorizations and clearances mentioned for exploration and ... – PowerPoint PPT presentation

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Title: Energy Conclave 2006 organised by IRADE 26th July, 2006 LEGAL AND REGULATORY FRAMEWORK FOR THE PETRO


1
Energy Conclave 2006organised by
IRADE26th July, 2006LEGAL AND REGULATORY
FRAMEWORK FOR THE PETROLEUM SECTORHemant
Sahai AssociatesAdvocatesNew Delhi Mumbai
Bangalore Goa London
2
CONSTITUTIONAL AND LEGAL FRAMEWORK
  • By virtue of Article 297 of the Constitution of
    India, petroleum in its natural state, including
    in the Territorial Waters and the Continental
    Shelf of India is vested in the Union of India
  • Petroleum Act, 1934
  • Petroleum Rules, 2002
  • deal with the law relating to the import,
    transport, storage, production, refining and
    blending of petroleum.
  • Oilfields (Regulation and Development) Act, 1948
  • Petroleum and Natural Gas Rules, 1959
  • Provide for regulation of Petroleum Operations
    and grant of Licenses and Leases for exploration,
    development and production of Petroleum in India

3
LEGAL FRAMEWORK
  • Petroleum and Minerals, Pipelines (Acquisition of
    Right of User in Land) Act, 1962
  • Provides for acquisition of rights of way for
    laying pipelines
  • Territorial Waters, Continental Shelf, Exclusive
    Economic Zone and other Maritime Zones Act, 1976
  • provides for the grant of a license by the
    Government to explore and exploit the resources
    of the continental shelf and exclusive economic
    zone and provide for the grant of License and
    Lease in respect of any land or mineral
    underlying the ocean, within the territorial
    waters, the continental shelf and exclusive
    economic zone of India by the Central Government

4
LEGAL FRAMEWORK
  • Essential Commodities Act, 1955
  • Price control
  • Petroleum and Natural Gas Regulatory Board Act,
    2006 (yet to be brought into force)
  • Provides for the establishment of a Regulator for
    the Sector

5
REGULATORY FRAMEWORK
  • Currently, the Government of India through the
    Ministry of Petroleum and Natural Gas (MOPNG) and
    Director General of Hydrocarbons regulates the
    Hydrocarbon sector
  • The Petroleum and Natural Gas Regulatory Board
    Act, 2006 has been passed - yet to be brought
    into force
  • The Act provides for the establishment of the
    Petroleum and Natural Gas Regulatory Board to
    regulate the refining, processing, storage,
    transportation, distribution, marketing and sale
    of petroleum, petroleum products and natural gas
  • The Act does not deal with EP, i.e. the
    production of crude oil and natural gas

6
REGULATORY FRAMEWORK
  • Key functions of the Regulator include
  • ensuring uninterrupted and adequate supply of
    petroleum, petroleum products and natural gas in
    all parts of the country
  • to promote competitive markets
  • Protect consumer interest and foster fair trade
    and competition
  • Register entities to market notified petroleum
    products and natural gas to establish and
    operate LNG terminals and to establish storage
    facilities for petroleum, petroleum products and
    natural gas
  • Authorise entities to lay, build, operate or
    expand a common carrier or contract carrier or
    local natural gas distribution network
  • Declare pipelines as common carrier or contract
    carrier
  • Notify Regulations for access to common/contract
    carrier and specify pipeline access code for
    transportation rates for access to city/local
    natural gas distribution network to ensure fair
    trade competition and for technical and safety
    specifications
  • The Act does not deal with the production of
    crude oil and natural gas

7
REGULATORY FRAMEWORK
  • Key functions of the Regulator. Contd.
  • Authorise entities to lay, build, operate or
    expand a common carrier or contract carrier or
    local natural gas distribution network
  • Declare pipelines as common carrier or contract
    carrier
  • Notify Regulations for access to common/contract
    carrier and specify pipeline access code for
    transportation rates for access to city/local
    natural gas distribution network to ensure fair
    trade competition and for technical and safety
    specifications

8
REGULATORY FRAMEWORK
  • Status of the Regulator under the Act
  • The Act prescribes an independent status for the
    Regulator quasi judicial body
  • The Central Government will have powers to lay
    down the broad policy framework, besides being
    entitled to intervene in matters adversely
    affecting public interest.

9
EXPLORATION AND PRODUCTION
  • Private participation in gas exploration and
    production is pursuant to the NELP and in terms
    of the Oilfields (Regulation and Development)
    Act, 1948 and Petroleum and Natural Gas Rules,
    1959
  • Production Sharing model.
  • Gas can be freely marketed and sold by the
    constituents of PSC crude has to be sold only
    to persons designated by Government of India
  • in NELP VIth round Freedom has been given to the
    contractor for marketing of oil and gas in the
    domestic market.

10
EXPLORATION AND PRODUCTION
  • NELP VI PRINCIPAL FEATURES
  • Upto 100 participation by foreign companies.
  • No signature, discovery or production bonus.
  • No mandatory state participation.
  • No carried interest by National Oil Companies
    (NOCs).
  • Income Tax Holiday for seven years from start of
    commercial production.
  • Sharing of profit petroleum based on pre-tax
    investment multiple achieved by the contractor
    and is biddable.

11
EXPLORATION AND PRODUCTION
  • NELP VI PRINCIPAL FEATURES
  • Royalty for onland areas payable at the rate of
    12.5 for crude oil and 10 for natural gas. For
    offshore areas, royalty payable at the rate of
    10 for oil and natural gas. Royalty for
    discoveries
  • in deep water areas beyond 400 m iso-bath payable
    at half the applicable rate for offshore areas
    for the first seven years of commercial
    production.
  • Fiscal stability provision in the contract.
  • Freedom to the contractor for marketing of oil
    and gas in the domestic market.
  • To facilitate investors, a Petroleum Tax Guide
    (PTG) in place.

12
PIPELINE TRANSPORTATION STORAGE
  • The major gas sector infrastructure has been
    developed by GAIL including the major
    Hazira-Vijaipur-Jagdishpur (HVJ) pipeline.
  • Other players are OIL, Assam Gas Company, Gujarat
    Gas Company, Gujarat State Petroleum Corporation,
    Mahanagar Gas Limited and Indraprastha Gas
    Limited.
  • Right-of-way for laying pipelines is granted
    under the Pipelines Act Notification by
    Government of India, additional clearances from
    highways, canals and other bodies.
  • The Petroleum Regulatory Board Act provides a
    framework for authorizations to lay, build,
    operate or expand pipeline and establish and
    operate LNG terminals.

13
DISTRIBUTION
  • Today, GAIL is the primary gas transmission,
    distribution and marketing company in India
    accounting for almost 95 percent of the market
    share.
  • No specific rules that govern operation of
    distribution networks. Same Government
    authorizations and clearances mentioned for
    exploration and production are required The
    Regulator will be required to establish such
    rules and protocols.
  • As regards tariff, no system in place to govern
    prices of distribution services in India, For use
    of GAIL pipelines, GAIL charges a flat rate to
    its customers, and revises such tariff based on
    approval from the Central Government Once again
    The Regulator will be required to establish such
    rules and protocols for tariff determination and
    open access rules.

14
DISTRIBUTION
  • Guidelines for Laying Petroleum Product Pipelines
    was notified on 20th November 2002 and
    supplemented on 26th October 2004, to deregulate
    the oil sector and to attract investment in the
    petroleum product pipelines.
  • The main features of the Guidelines are
  • Categorization of pipelines into those of
    specified length (upto 300 km or more)
    originating from refineries, captive pipelines
    and those originating from ports
  • Right of user (RoU) in land for laying pipelines
    under the Petroleum Pipelines (Acquisition of
    Right of User in Land) Act 1962 for the pipelines
    less than 300 km in length, will be granted in
    favour of applicant company treating such
    pipelines as captive pipelines
  • For pipes more than 300 km in length, specified
    procedure shall be followed including a mandatory
    invitation of expression of interest from any
    company interested in taking capacity on a take
    or pay basis

15
DISTRIBUTION
  • Features ..Contd.
  • Common carrier principle shall be followed in
    case of excess capacity, on the basis of a tariff
    as approved by the competent authority
  • The ROU acquisition under the Petroleum Pipelines
    (Acquisition of Right of User in Land) Act, 1962
    will be subject to such conditions as may be
    deemed fit by the Government in public interest
    and subject to specified conditions
  • The guidelines are to remain in force till the
    Petroleum Regulatory Board is constituted.
  • After Petroleum Regulatory Board is constituted,
    the RoU in land for laying petroleum product
    pipelines will be granted by the Ministry of
    Petroleum Natural Gas subject to fulfillment of
    requirements under the petroleum regulatory law.
  • Eligibility of parties seeking capacity will not
    be limited on the grounds that the party seeking
    capacity is neither a refinery nor possesses any
    marketing rights.

16
IMPLICATION OF SUPREME COURT DECISION ON GUJARAT
GAS ACT
  • The Government of Gujarat tried to introduce
    provisions pertaining to distribution networks in
    the State of Gujarat through the Gujarat Gas
    (Regulation of Transmission, Supply and
    Distribution) Act, 2001.
  • The Central Government took the view that it
    alone had powers to legislate on natural gas and
    LNG.
  • President of India referred the matter to the
    Supreme Court of India to provide its opinion on
    whether the State Governments or the Central
    Government had such powers under the Constitution
    of India.
  • On 25 March 2004, the Supreme Court of India has
    opined that natural gas in any physical form
    including LNG is a central subject and the State
    Governments have no power to legislate on it.

17
FOREIGN INVESTMENT REGIME
  • EP and transportation
  • FDI upto 100 is permitted on the automatic route
    in oil (Other than refining) exploration in both
    small and medium size fields subject to and under
    the policy of Government on private participation
    in
  • (a) exploration of oil and
  • (b) the discovered fields of National Oil
    companies
  • FDI upto 100 is permitted on the automatic route
    on petroleum product marketing, subject to the
    existing sectoral policy and regulatory framework
    in the oil marketing sector.
  • Investment of Rs 2,000 crores in the petroleum
    sector, over a 10 year period.)

18
FOREIGN INVESTMENT REGIME
  • FDI upto 100 is permitted on the automatic route
    for petroleum product pipeline subject to and
    under the Government policy and regulations
    thereof.
  • FDI upto 100 is permitted for natural gas/LNG
    pipelines with prior Government approval.
  • 100 wholly owned subsidiary (WOS) is permitted
    for the purpose of market study and formulation
    under FIPB route.
  • 100 wholly owned subsidiary (WOS) is permitted
    for investment/financing.

19
FOREIGN INVESTMENT REGIME
  • Refining
  • FDI is permitted up to 26 in case of public
    sector units (PSUs).
  • PSUs will hold 26 and balance 48 by public.
    Automatic route is not available
  • In case of private Indian companies, FDI is
    permitted upto 100 under automatic route

20
THANK YOU
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