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Petroleum and Natural Gas Regulatory Board – LNG Terminals
October 04, 2019

The Petroleum and Natural Gas Regulatory Board (‘PNGRB’) has circulated the draft regulations for registration of LNG terminals for purpose of consultation from time to time, starting from the year 2009. As on date;

  • The Petroleum and Natural Gas Regulatory Board (Registration for establishing & operating Liquefied Natural Gas (LNG) terminals) Regulations, 2018 (‘Draft LNG terminal Regulations, 2018’) remain unnotified. Section 15 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (‘Act’) requires every entity wishing to establish or operate an LNG terminal to make an application to the Board for its registration, failure of which attracts punishment under Section 47 of the Act. However, Section 15(2) of the Act requires such application to be made in the form and manner determined by the Board by regulations. Such regulations do not exist as on date.
  • The Ministry of Petroleum and Natural Gas has notified the rules on eligibility conditions for registration of LNG terminals vide notification bearing number GSR 805(E) dated October 30, 2012.

PNGRB webhosted the Draft LNG Terminal Regulations, 2018 for seeking public comments on March 23, 2018. Before addressing some of the underlying fundamental issues in respect of the Draft LNG Terminal Regulations, 2018, certain salient features are summarized as under;

  • Registration is required for establishing or operating LNG terminals. The particulars required for registration include the location, regasification capacity, long term committed regasification capacity, short term (less than 5 years contract) uncommitted re-gasification capacity, 20 percent of short term (less than 5 years contract) uncommitted re-gasification capacity and common carrier regasification capacity.
  • LNG terminal must offer 20% of its short-term uncommitted re-gasification capacity or 0.5 MMTPA, whichever is higher as ‘common carrier capacity’.
  • ‘Short term’ means less than 5 years.
  • ‘Uncommitted capacity’ means that capacity of the LNG facility which is net of the entity’s own and the contractual requirements.
  • Bank Guarantee required for an amount equivalent to 1 percent of the estimated project cost of the LNG Terminal or Rupees 25 Crore, whichever is less.
  • The Board shall issue a ‘certification of registration’ with a validity of 25 years.
  • The Board may consider to extened the certificate for an additional block of 10 years at the end of validity period, at a time on terms and conditions as it may deem fit at that time.
  • Specified information is required to be submitted as on first of April and October each year in respect of the LNG Terminal. Such information includes amongst other things, common carrier capacity and details of entities to whom common carrier capacity was provided during the previous 6 months period together with quantity provided.
  • Suspension of Certificate of Registration in case of default and termination thereof in case of failure to rectify the default.

The public comments in response to the Draft LNG Terminals Regulations, 2018 are divergent and reflect diverse perspectives. In our view, the issues that require particular consideration include;

Common carrier capacity or third party access
Registration and Authorisation

Common carrier capacity or third-party access (‘TPA’)

The concept of TPA requires contextual evaluation.
This evaluation would be based on factors such as requirement of LNG in the relevant geographical market, which further depends on factors including availability of sources of           energy other than LNG in that specific market.

A decision to implement TPA in case of LNG Terminals requires examination of more than one dimension as stated below.

  • Source of gas or part of upstream as opposed to ‘essential infrastructure’ or part of downstream. LNG Terminal may simply be seen as a source of gas, as in case of a gas field; or, it may be viewed as an ‘essential infrastructure’, like in case of gas pipeline system.
  • Regulated access as opposed to proprietary access. In case of regulated access, the regulators dictate the terms and tariff from the start point of the transaction till the end point of the transaction. On the other hand, in case of proprietary access, the parties to the transaction have autonomy to negotiate their own terms and are not subject to regulatory control.
  • Competition and TPA – Third party access promotes competition since it enables free access for new entrants as an LNG Terminal is inherently monopolistic in nature.

In a scenario where terminal capacity is booked on the basis of ownership stake in the terminal, even though operatorship of the terminal is unbundled, the end result could lead to an oligopoly. Proprietary TPA may reduce the barriers that result from such oligopoly.
The Draft LNG Terminals Regulations, 2018 contemplates that an LNG terminal must offer 20% of its short-term uncommitted re-gasification capacity, or 0.5 MMTPA, whichever is higher as ‘common carrier capacity’. Theoretically speaking, proprietary TPA presents a solution to the effects of an oligopoly, yet implementation of TPA will have to depend upon several factors including capacity of the terminal.

Registration and Authorisation

The Act clearly differentiates between the concept of ‘authorization’ and ‘registration’. While registration has been contemplated amongst other things for establishing or operating a ‘liquified natural gas terminal’, authorization has been contemplated amongst other things for laying, building, expanding or operating pipelines as common carrier or contract carrier or and not for ‘liquified natural gas terminal’.
Arguably, it follows that facilities such as LNG Terminals are not intended to be governed by provisions pertaining to ‘authorization’; Accordingly, one may conclude that the terms and conditions attached to ‘Certificate of Registration’ in respect of LNG Terminals cannot be akin to provisions of authorization such as requirement of bank guarantee.

It would seem that any regulation seeking to regulate LNG Terminals may require a more comprehensive approach. However, the provisions of the Act limit the scope considerably, in this context.