Professional Documents
Culture Documents
Mulla Tech
Mulla Tech
Solicitor, Mulla and Mulla and Craigie Blunt and Caroe, Mumbai, India
With an increase in the demand and supply for national oil companies.
petroleum and natural gas products, and with multiple • FDI up to 100% is permitted on the automatic
new players entering the market, the Indian route for petroleum product pipelines subject to and
government has enacted the Petroleum and Natural under the government policy and regulations
Gas Regulatory Board Act, 2006 (the ‘act’). thereof.
• FDI up to 100% is permitted for natural gas/
Its aim is to: liquefied natural gas (LNG) pipelines with prior
government approval.
• promote competition among entities; • FDI up to 100% is permitted in, other than
• avoid infructuous investment; refining and including market study and
• maintain or increase supplies; formulation; investment/financing, setting up
• secure equitable distribution; and infrastructure for marketing in petroleum and
• ensure adequate availability of petroleum, natural gas sector subject to sectoral regulations,
petroleum products and natural gas nationwide. issued by the Ministry of Petroleum & Natural
Gas, and in the case of actual trading and
The act is to provide for the establishment of the marketing of petroleum products, divestment of
Petroleum and Natural Gas Regulatory Board (the 26% equity in favour of Indian partner/public
‘board’) in order to regulate the refining, processing, within five years.
storage, transportation, distribution, marketing and sale • FDI up to 26% are permitted in the refining sector
of petroleum, petroleum products and natural gas, in case of public sector undertakings (PSUs), with
excluding production of crude oil and natural gas. This prior approval of the Foreign Investment
is to protect the interests of consumers and entities Promotion Board (FIPB) and up to 100% in case
engaged in specified activities relating to petroleum, of private companies under the automatic route.
petroleum products and natural gas, and to ensure
uninterrupted and adequate supply of petroleum, Policies and Procedures
petroleum products and natural gas in all parts of the
country whilst promoting competitive markets. A number of policy initiatives have been taken by
the Government of India for facilitating the inflow of
Foreign Direct Investment foreign capital and for encouraging entrepreneurs to
invest in India, such as:
The Ministry of Finance, Government of India,
now permits up to 100% foreign direct investment • equity participation in commercial and industrial
(FDI) into the petroleum and natural gas sector, ventures, which has been freed from all
under the automatic approval route of the Reserve restrictions, FDI is now permitted up to 100% in
Bank of India. The caps on FDI are as follows: different activities in the petroleum sector;
• rupee convertibility on the current account;
• FDI up to 100% is permitted on the automatic • deregulation and delicensing of various petroleum
route on petroleum product marketing. FDI for this products in the country;
sector would be permissible subject to the existing • gradual decontrol of pricing and distribution;
sectoral policy and regulatory framework in the oil • freedom to form joint venture companies (JVCs)
marketing sector. for the development of infrastructure and for
• FDI up to 100% is allowed on the automatic route marketing and refining activities; and
in oil exploration in both small and medium-sized • procedure for obtaining industrial licences has
fields, subject to and under the policy of the been simplified by making an application to the
government on private participation in: (1) Secretariat for Industrial Approvals (SIA),
exploration of oil and (2) the discovered fields of Department of Industrial Policy & Promotion,
operation of pipeline and infrastructure projects, related service and security of supply to the consumers by
to downstream petroleum and natural gas section. the entities; and
• registration or authorisation issued by the board
The board is required to maintain a data bank and under the relevant sections of the act.
information system relating to activities of entities
dealing with petroleum, petroleum products and The bench as constituted above would exercise such
natural gas. jurisdiction, powers and authority as were exercisable
by a civil court in India.
For this purpose, every entity is required to
maintain such documentary records as specified by Contravention and Penalties
the board, allow inspection of such facilities and
records to a person authorized by the board, The board is authorized to fine an entity with a
commence operations within the period specified prescribed penalty, as well as punish an entity with
by the board, and register the agreements and any imprisonment for such prescribed terms as set out in
other document with the board for use of pipelines the act for every contravention set out below,
for supply of petroleum, petroleum products and including an additional penalty for continuing
natural gas, and also comply with the marketing contravention till the wrong is remedied to the
service obligations and retail service obligations. satisfaction of the board:
The board is entitled to call for such information • if a person contravenes the directions of the board;
from any entity for ensuring transparency or • if any person willfully fails to comply with the order
ascertaining the true ownership of that entity. of the Appellate Tribunal;
• if any person, being an entity, markets any notified
Transportation Tariffs petroleum, petroleum products or natural gas
without a valid registration, or authorization;
The board has been authorised to lay down • if a person establishes or operates an LNG terminal
transportation tariffs for common carriers, or contract without registration as required under the act;
carriers or a city or local natural gas distribution • if a person lays, builds, operates or expands a
network, based on the factors that may encourage common carrier or contract carrier or a city or local
competition, efficiency, economic use of the resources, natural gas distribution network without obtaining
good performance and optimum investments. It will authorisation required under the act; and
also safeguard the consumer interest, and at the same • if a person willfully removes, destroys or damages
time recover the cost of transportation in a reasonable any pipelines or city or local natural gas distribution
manner, the principles rewarding efficiency in network or other work of the common carrier or
performance; the connected infrastructure such as contract carrier for supplying petroleum, petroleum
compressors, pumps, metering units, storage and the products or natural gas.
like connected to the common carriers or contract
carriers, benchmarking against a reference tariff Conclusion
calculated based on cost of service, internal rate of
return, net present value or alternate mode of transport India is developing into a major market for the
and the policy of the central government applicable to petroleum and natural gas segment, with the
common carrier, contract carrier and a city or local government opening up the sector and laying down
distribution natural gas network. liberalized guidelines and transparent procedures. The
statute has been promulgated this year and the board as
Settlement of Disputes a regulator is shortly expected to be formed. Different
provisions of the act would be notified from time to
Any disputes that arise in respect of the matters time as stipulated in the act. These provisions will
below among entities or between an entity and encourage development in all areas of petroleum and
another person could be decided by a bench natural gas segment in the drive to meet India’s
consisting of the member (legal) and one or more growing demand. ■
members nominated by the chairperson under the
act. The matters are as follows: Contact Information
• refining, processing, storage, transportation and Name Mulla & Mulla & Craigie Blunt & Caroe
distribution of petroleum, petroleum products and Address Mulla House, 51 M.G. Road, Fort,
natural gas by the entities; Mumbai 400 001, India
• marketing and sale of petroleum, petroleum Tel.: +91 22 6634 5496 (Direct)
products and natural gas, including the quality of e-Mail: shardul.thacker@mullaandmulla.com