Monday, August 20, 2012

Clean track record until the RIL-RNRL fracas

While the upstream regulator has enjoyed a relatively clean track record until the RIL-RNRL fracas, the downstream regulator is yet to get really started by Virat Bahri

The entire process of privatization has been criticized on grounds of giving the shorter end of the stick to ONGC, but a former ONGC official also admits that ONGC would have been unable to tap hydrocarbon reserves in the manner that private players have done. The official also admits that DGH has also done admirable work since formation but needs more hands and powers. For instance, the DGH representatives that come on board for meetings with oil company officials are normally government officials on deputation as DGH doesn’t have the required manpower on its rolls. It is also suggested by legal experts that it should not remain a part of the ministry and be independent. Also, being answerable to the parliament instead is the better option, which should be able to check the possible misuse of powers as was seen during the RIL gas controversy.

India’s downstream regulator – Petroleum and Natural Gas Regulatory Board (PNGRB) – is a more recent phenomenon; and it was instituted in 2006 to regulate “refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas.” The aim here was to protect stakeholder interests ensure uninterrupted and adequate supply and promote competition. India began dismantling of its Administered Pricing Mechanism in 2002, as a result of which, it has permitted free imports for petroleum products except for petrol and diesel as well as free marketing of imported kerosene, LPG and lubricants by private parties. One of its key roles has been to institute a regulatory mechanism for the transportation and distribution of natural gas across the country. But as APM is still not a reality for petrol and diesel, the role of PNGRB remains quite diluted in terms of creating a competitive market for these two important products.

Considering it has been instituted so recently, PNGRB’s record with controversies is pretty strong. Moreover, lack of clear definition of its role has been a major failing. Unlike DGH, PNGRB hasn’t exactly been on excellent terms with the MOPNG. The ministry had circulated the idea of bringing up a separate natural gas authority last year. PNGRB opposed the move vehemently, perceiving a decline in its powers. In fact the ministry has not yet issued the notification that authorizes PNGRB to grant approvals for natural gas pipelines. And in this short period of existence, PNGRB has already faced a legal suite from government-owned Indraprastha Gas, which challenged its authority to grant licenses to retail CNG to automobiles and households. The fracas began when IGL, which was authorized to sell gas in Ghaziabad before PNGRB was set up, notified the New Delhi High Court about PNGRB evaluating bids for new licences in the city. The Delhi court restrained PNGRB from going ahead. Also, PNGRB’s own regulations grant 5 year exclusivity to companies when they successfully bid for one area. The board’s own members have reportedly criticized its decision to fix higher gas transportation tariffs for two pipelines owned by Gail and Reliance Gas Transmission & Infrastructure (RGTIL) without proper deliberation. PSU oil companies have also challenged the board’s power to regulate prices of products like motor spirit & high speed diesel. This regulator has lived a relatively listless life till now, and a clear definition of its powers is going to provide the first signs of hope.



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