Step on oil & gas
The regulatory functions will apply to refining, processing, storage, transportation, distribution, marketing and sale of petroleum products and natural gas excluding production of crude oil and natural gas.
The regulator has the mandate to protect the interests of consumers and entities, ensure uninterrupted and adequate supply and promote competitive markets. With the requisite legal framework finally in place, the challenge now lies in establishing an independent, transparent, accountable and nondiscriminatory regulatory regime.
Once constituted, it is paramount that the regulator has required powers to take decisions independently. In streamlining the selection process and ensuring independence of the regulator, the experiences from other regulatory agencies such as Trai and CERC should be considered.
Due consideration also needs to be given to the relationship between the proposed regulator and the Competition Commission of India in dealing with various competition related issues. The regulator would also need to maintain close synergies with other energy sector regulators because of the inter linkages between these sections.
The Act has set forth a number of functions for the regulator such as registering entities, authorising pipelines as common/contract carrier, ensuring compliance of entities with retail service and marketing service obligations, ensuring adequate/equitable distribution, monitoring establishment of dealerships/distributorships during transition, laying down technical standards and specification and adjudicating disputes.
Some of these functions would require a good understanding of best practices around the world and capacity building of the regulator.
An important regulatory function pertains to declaring pipelines as common carriers or contract carriers. In case of common carrier pipelines, owners of pipeline infrastructure have an obligation to provide service, as per the applicable rates, on a non-discriminatory basis to third parties.
On the other hand, in case of contract carriers, transmitters need to provide additional facilities only where users are willing to sign firm contracts for their use. In the case of existing facilities, transmitters are obligated to provide transmission services up to the extent of any spare capacity/expandability.
While declaring a pipeline as contract carrier, the regulatory challenge lies in determining whether long-term contracts offering exclusivity rights to transport capacity are necessary for securing investments.
At the same time, regulator has to assess contribution of the investment in question on enhancing security of supply and at the same time ensuring that future competition in the market is not hampered. Besides this, the principles for determining transportation tariffs for common carriers/contract carriers also need to be laid down.
A regulatory board will be required to specify the pipeline access code which would also address the issue of inter connectivity of pipelines. Similarly, the ‘affiliate code of conduct’ for entities engaged in both marketing and transportation of natural gas will need to be laid down.
Another key responsibility of the regulator will be to spell out and enforce marketing service obligations on the oil companies so as to ensure easy availability of petroleum products at reasonable prices to consumers in remote areas.
For this a choice would have to be made from the different options available. Key determinant of this choice would be that it should result in optimum utilisation of resources of the entities at the same time ensuring that the desired services are provided to the consumers.
Similarly, retail service obligations will also need to be spelt out and enforced by the board. Under the retail service obligation, the retail outlets, among others things, are required to provide right quality and quantity of products to the customers.
While oil marketing companies have taken various measures to ensure the same, they have met with little success with transporters and retailers often finding ingenious ways to get around them. While spelling out retail service obligations, the regulator would need to clearly delineate the responsibilities of the dealers/distributors and oil companies. At the same time, penalties in case of non-compliance will have to be decided.
The regulator has an uphill task ahead. Huge investment is required for development of downstream sectors of oil and gas, especially in the latter. Gas market is still evolving and significant gas infrastructure needs to be developed.