1. Petroleum & Natural Gas Regulatory Board Act 2006 Past Evolution and Future Developments By B S Negi Member Petroleum and Natural Gas Regulatory Board New Delhi, 14 th -15 th April 2008 5th Asia Gas Partnership Summit 2008

2. CONTENTS INDIAN ECONOMY INDIAN OIL & GAS SCENARIO NEED FOR REGULATORY BOARD PETROLEUM AND NATURAL GAS REGULATORY BOARD (PNGRB) ACT 2006 GOVERNMENT POLICIES FUNCTION OF THE BOARD BOARD CONDUCIVE TO GROWTH OF OIL & GAS SECTOR ISSUES WAY FORWARD

3. *source Economic Survey 2007 *source RBI Press Release dated 30 Aug 2007 Indian Economy- Present State 7th largest country in the world and 2nd largest in Asia 4th largest economy in terms of Purchasing Power Parity (PPP) next only to United States, Japan and China 5 TH largest energy consumer 6 th largest gas consumer GDP growth 9.2%* during financial year 2006-07 GDP-composition by sector: Agriculture - 18.5%*, Industry - 26.4%*, Services - 55.1%*. Net Foreign Direct Investment (FDI) inflows 2006- 07: USD 19.4 billion*.

4.  26 sedimentary basins: 3.14 million sq. km. l Onland area - 1.39 million sq. km. l Offshore area - 1.75 million sq. km.  About 50% of area unexplored or poorly explored  162 blocks awarded till NELP VI Indian Oil & Gas Sector Statistics Sedimentary Basins & Hydrocarbon Reserves ……… a lot of potential to explore   Balance recoverable reserves : 1.85 BMT (O+OEG)   Current Oil production : 32.19 MMT (2005-06)   Current Gas production : 32.20 BCM (2005-06)

5. Indian Gas Sector Statistics Oil Refining capacity- 148 mmtpa Petro Products consumption -128 mmtpa Gas Consumption- 39 bcm LNG Import( 5 mmtpa long term, 1 mmtpa spot) Natural Gas Pipeline – 8000 Kms (Including regional Network) Product Pipeline – 10000 Kms (including LPG Pipelines) City Gas Distribution   17 cities supplied with Gas   5 cities waiting for Gas supply   About 0.40 million vehicles are running on CNG   About 0.79 million household are connected to PNG

6. Investment need across all infrastructure sectors – large opportunity for input providers Source: Planning Commission Working Group reports …will create demand for Power equipment EPC Contracting Construction equipment Material Handling equipment Electronic and IT systems Environment technologies Transport equipment Financial services Real estate Education and training Design and Planning services Advisory and professional services Key Sectors Estimated Investment (2007-12, USD Bn) Airports7 – 10 Irrigation15 – 20 Ports12 – 15 Power 150 – 180 Pipeline7 – 10 Railways40 - 55 Roads45 - 60 Urban infrastructure 20 - 30 SEZ60 – 70

7. Indian Oil & Gas Sector- Evolution 1886 – oil found in upper Assam in India 1901 – First refinery set up at Digboi 1960 – Development along west coast following offshore and on shore discoveries of ONGC 1960s – Gas discovered by ONGC in Assam 1993 onwards – Next stage of development, gas discoveries by GSPC, Niko, RIL,BG, Cairn and others 1998 – GSPC floated a separate SPV, GSPL. To build transmission lines 1999 – Gas discovered by ONGC and Cairn at Ravva 2002 – Gas discovery by RIL at KG Basin 2004 – Gas discovery by GSPC at KG basin 2004 – Petronet LNG commissioned Dahej terminal 2005 – Shell built the Hazira LNG terminal 2006 – Spot cargos unloaded at Hazira and Dahej 2007- RLNG reaches Dhabol plant- Spot cargoes from Qatar

8. Upstream – Crude Oil Demand, Production & Import Trends MMT

9. Gas Demand, Production & Import Trends BCM

10. Need for Regulator   Need for regulator due to : increasing pool deficits increasing import dependence, increasing complexities Price disparities Attract investment - globalization and liberalization   Price disparity-Natural Gas   APM Price-$ 2.032/mmbtu, $1.22/mmbtu(North East)   PMT($4.75/mmbtu till 31-3-08, now $5.75/mmbtu from 1-4-08)   Ravva ($3.5/mmbtu) Ravva satelite($4.3/mmbtu)   LNG (long term SPA-$3.86/mmbtu)   LNG Spot Cargo $10 to 17/mmbtu)

11. Need for Regulator   Transportation disparity   Gas HVJ-$ 0.7/mmbtu   Regional System-$0.15/mmbtu   Petroleum Products- Pipeline 70% of Railway tariff   Road Transport- 2.5 to 3 times of Pipeline tariff   Government decided to dismantle APM and set up independent Regulatory Authority through a Gazette Notification issued in 1997

12. Need for Regulator Vision behind APM dismantling   A free and competitive market would emerge benefiting both consumers and the petroleum industry   Domestic industry becomes more competitive by improving its productivity and efficiency   Reduction and phasing out subsidies leading to economic pricing of hydrocarbon commodities   Reduction in unproductive usage   Provision of subsidies through fiscal budget would be more transparent

13. Petroleum & NG Regulatory Board Act 2006 PNGRB bill cleared by Rajya sabha on 2 nd march 2006 & Lok Sabha on 21 st March 2006 Assent of president granted on 31 st March 2006 Bill became an act, through a gazette notification dated 3rd April 2006(19 of 2006) Act notified by the Government on 1 st October 2007

14. Government Policies Regulatory Scenario Petroleum & Natural Gas Regulatory Board Act Policy for marketing of transport fuels Policy on NG Pipelines and CGD networks Product Pipeline Policy Policy on Refining

15. Objectives of the Board Regulate refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas (P,PP&NG) Protect the interests of consumers and entities Ensure uninterrupted and adequate supplies in all parts of the country Promote competitive markets Processing Storage Marketing & Sale Distribution Transportation Refining

16. Constitution of the Board PNGRB has a Chairperson and four Members Sh. L.K. Singhvi Sh. L.K. Singhvi Member (Commercial) Ms. Sudha Mahalingam Member (Distribution) Sh L. Mansingh Sh L. MansinghChairperson Sh. B.S. Negi Member (Infrastructure) Dr. YPC Dangay Member (Legal)

17. Activities under purview of PNGRB Enforce retail & marketting service obligation Monitor prices & prevent restrictive trade practices Register & Authorise entities Declare pipeline as common / contract carrier Perform other functions entrusted by Central Government Protect consumer interest by fostering fair trade & competition Regulate access & transportation rate on common / contract carrier / CGD network Ensure adequate availability, and equitable distribution Functions of the Board Lay down technical standards / specifications Maintain databank of information

18. Functions of the Board   protect the interest of consumers- foster fair trade and competition   register entities to–   Market, notified P,PP&NG   Establish LNG terminals   Establish storage facilities for P,PP&NG   Authorize entities to –   Lay, build, operate or expand a common or contract carrier   Lay, build, operate or expand a CGD network

19. Functions of the Board   declare pipelines as common carrier or contract carrier   regulate, by regulations-   Access to common carrier or contract carrier   Transportation tariff   Access to CGD network

20. Functions of the Board in respect of notified P,PP&NG – – – Ensure adequate availability – – Ensure display of prices at retail outlets – – Monitor prices, transportation rate – – Prevent restrictive trade practice – – Secure equitable distribution for P,P&NG – – Provide by Regulation and enforce   Retail service obligations for entities   Marketing service obligations for ROs

21. Functions of the Board Maintain a data bank Lay down Technical standards and specifications including safety standards(T4S) Levy fee and other charges Other functions as entrusted by the Central Government

22. Progress so far…. Advisory Committees constituted as part of consultation process – – To review the Technical standards and specifications including safety standards (TSSSS) for the downstream oil and gas sector Divided into ten sub committees in various activities of downstream oil & gas sector including a sub committee on Third Party Conformity Assessment, strategic Storage and Disaster Management – – On coverage of domestic PNG connections to serve as service obligations for CGD networks – – On financial parameters (including net work tariff) for CGD networks – – On Quality of Standards to serve as service obligations for CGD networks

23. Progress so far…. Regulations notified so far: – – Appointment of Consultants – – Meetings of the Board – – Conduct of Business, receiving and investigation of Complaints – – Levy of fee and other charges – – Authorization of CGD networks – – Exclusivity on CGD Networks – – Tariff determination for CGD Networks

24. PNGRB – beneficial to consumers Better service through competition To get access to P,PP&NG Safety in Services Price display – Mandatory Retail service obligations – quality of products & services Complaints redressal Code/standards/best practices to-   Improve quality of products & services   Ensure safety

25. PNGRB – beneficial to consumers Environmental benefits - use of PNG/CNG Genuine price – market determined Economy in transportation – regulator decides tariff by regulation Regulator to have least discretion and maximum transparency- leading to high degree of consumer confidence

26. PNGRB- Conducive to Investment No monopoly Foster fair trade Create competition Selection of entities on transparent manner – rules of the game are pre determined by regulations Determine tariff by regulation Pipelines as common carrier or contract carrier Open access to pipeline system and CGD

27. Access code by regulation Infrastructure status to pipelines and CGD Market determined pricing Access to information – Registration, authorization, Dispute resolution etc FDI- 100% allowed Independent Regulator – The PNGRB Fair chance of selection/success PNGRB- Conducive to Investment

28. Unbundling Affiliate Code Nascent gas market – First mover advantage New Gas finds Additional Gas sources   CBM   Insitu gasification – coal/lignite   Bio gas, Hydrogen   LNG imports, LNG by tankers   Gas from stranded/isolated, marginal fields

29. PNGRB- Conducive to Investment Level playing field for all entities Dispute resolution made easy-   Dispute between entities – PNGRB to resolve   Appeal to Appellate tribunal against PNGRB decision   Appeal to Supreme court against the decision of Appellate tribunal

30. PNGRB- way forward& issues Pricing P,PP&NG distribution Subsidy Management Mandating T4S Determine pipeline system capacity &declare common carrier/contract carrier Open access & access code Gas availability – New sources Market development stage

31. MARKET DEVELOPMENT STAGE Govt. Controlled Liberalized Mature Nascent OIL GAS MARKETSMARKETS MARKET OPENING

32. PNGRB- way forward& issues Gas trading Pipeline capacity trading How to include P,PP&NG storage, Aviation station and LNG regasification terminal within authorization Exclusivity (marketing, infrastructure) Existing entities (Pipelines and CGD) Unbundling Affiliate code of conduct

33. IMPLEMENTATION OF PNGRB ACT Board is to regulate by regulation Competition in the market place with minimum discretion and maximum transparency.Competition in the market place with minimum discretion and maximum transparency. Authorization for pipeline and CGD through competitive bidding processAuthorization for pipeline and CGD through competitive bidding process Exclusivity period for Marketing and Infrastructure development definedExclusivity period for Marketing and Infrastructure development defined Tariff Fixation- new project by competitive bidding ( for existing projects-Model defined)Tariff Fixation- new project by competitive bidding ( for existing projects-Model defined)

34. IMPLEMENTATION OF PNGRB ACT Bidding and evaluation criteria – transparentBidding and evaluation criteria – transparent Open access for common carrier well definedOpen access for common carrier well defined Pipeline capacity determination – uniform for allPipeline capacity determination – uniform for all Technical standards and specification including safety standards – uniform for all entitiesTechnical standards and specification including safety standards – uniform for all entities In respect of notified P,PP, & NG – Product availability, Market Display, Market Service Obligation & Retail Service obligationIn respect of notified P,PP, & NG – Product availability, Market Display, Market Service Obligation & Retail Service obligation Unbundling- Affiliate codeUnbundling- Affiliate code

35. Thank You