NOTIFICATION
NewDelhi,the19thMarch2008
G.S.R.198(E).-In exerciseofthepowersconferredby section61of thePetroleumandNatural Gas Regulatory Board Act, 2006 (19 of 2006), the Petroleum and Natural Gas RegulatoryBoardherebymakesthefollowingregulations,namely:-
1.Shorttitleandcommencement.
(1)TheseregulationsmaybecalledthePetroleumandNaturalGasRegulatory Board(ExclusivityforCity orLocalNaturalGasDistributionNetwork) Regulations,2008.
(2)They shall come into force on the date of their publication in the Official
Gazette.
2.Definitions.
(1)Intheseregulations,unlessthecontextotherwiserequires,-
(a) “Act”meansthePetroleumandNaturalGasRegulatoryBoardAct,2006;
(b) “appointedday”meansthedateofOctober1,2007whentheCentral Governmentnotifiedtheestablishmentof thePetroleumandNaturalGas RegulatoryBoard;
(c) “authorizedarea”meanstheareaasdefinedinclause(c)ofsub-regulation (1)ofregulation 2ofthePetroleum andNaturalGasRegulatory Board (AuthorizingEntitiesto Lay,Build,OperateorExpandCityorLocalNatural GasDistributionNetworks)Regulations,2008;
(d)“Board” means the Petroleum and Natural Gas Regulatory Board establishedundersub-section(1)ofsection3oftheAct.
(2)Wordsandexpressionsusedandnotdefinedintheseregulations,butdefined in the Act or in the rules or regulations made thereunder, shall have the meaningsrespectivelyassignedtothemintheAct.
3.Application.
These regulations shall apply toanentity which islaying, building, operating or expandingorwhichproposestolay,build,operateorexpandacityorlocalnatural gasdistributionnetwork(hereinafterreferredas CGDnetwork)underthe Petroleum andNaturalGasRegulatoryBoard(AuthorizingEntitiesto Lay,Build,Operateor ExpandCityorLocalNaturalGasDistributionNetworks)Regulations,2008.
4.Rationaleforallowingexclusivity.
TherationaleforallowingexclusivitytoanentityisexplainedinScheduleA,which only explainstherationaleforallowingexclusivityto entitiesto lay,build,operateor expandCGDnetworks,isnotpartofthisregulation,doesnothaveanylegalforce andshouldnotbequotedorrelieduponwhileinterpretingtheseregulations.
5.Exclusivityforlaying,buildingorexpansionofCGDnetwork
(1) TheBoardmayallowanentityexclusivityforlaying,buildingorexpandingof CGDNetworkovertheeconomiclifeof theprojectsubjectto the followingterms andconditions,namely:-
(a)duringtheeconomiclifewhichisnormallyexpectedtobetwentyfiveyears of theCGDnetworkprojectconsistingof networkof pipelines,online compressorsfor compressingnaturalgasintoCNGandotherallied equipmentsandfacilities,theauthorizedentityshallcarryout further expansions required through pipeline capacity building and CNG
infrastructureaswellascarry out replacementsandupgradationof assets and facilities as and when necessary in order to maintain the network systemintegrityatall timesincludingkeepingitabreastof technical advancementsandtheentityshallmeettherequirementfor investmentin pipelinesand otheralliedequipmentsincludingonlinecompressorsfor compressionof naturalgasintoCNGwhichmayemergeeitherto meetthe entity’sown requirementsor otherentitiesrequirementspost-exclusivity periodasperregulation6 besidescomplyingwiththeserviceobligationsas perregulation8;
(b) Theeconomiclifeoftheprojectshallcommencefrom,-
(i)incaseanentityproposestolay,buildorexpandaCGDnetworkonor aftertheappointedday,thedateofgrantof authorizationtotheentityby the Boardunderthe PetroleumandNaturalGas RegulatoryBoard (Authorizing Entities to Lay, Build, Operate or Expand City or Local NaturalGasDistributionNetworks)Regulations,2008;
(ii) in casean entityislaying,buildingor expandingCGDnetworkbeforethe appointed day, where the entity has either anauthorization from the CentralGovernmentbeforetheappointeddayoranauthorizationfrom the Boardunderthe PetroleumandNaturalGas RegulatoryBoard (Authorizing Entities to Lay, Build, Operate or Expand City or Local NaturalGasDistributionNetworks)Regulations,2008,theeconomiclife oftheCGDNetworkprojectshallcommencefromthe start-updateofthe commencementof physicalactivitiesof laying,buildingor expandingthe CGDnetwork.
(c) at the end of the economic life of the project, issue of allowing further extensionoftheperiodofexclusivityornotmaybeconsideredbytheBoard forablockoftenyearsatatime,dependingonthesatisfactorycompliance oftheserviceobligationsandqualityofservicenormsasspecifiedinthe
PetroleumandNaturalGasRegulatoryBoard(AuthorizingEntitiesto Lay, Build,Operateor ExpandCityorLocalNaturalGasDistributionNetworks) Regulations,2008,theserviceobligationsunderregulation8 andonsuch termsandconditions,asitmaydeemfitatthatpointintime.
(d) non-compliancetotheprovisionsofclause(a)ofsub-regulation(1)shallbe dealtthroughlevyofpenaltyandterminationoftheexclusivityperiodasper theprovisionsof regulation10andtheBoardreservestherightto allowany otherentityto takeup theactivitiesof laying,buildingor expandingor replacementofassetsandfacilitiesorbothintheCGDnetworkintermsof theprovisionsinregulation10.
6.Exclusivityfromthepurviewofcommoncarrierorcontractcarrier.
(1) TheBoardmayprovideexclusivitytoanentityproposingtolay,build,operateor expandaCGDnetworkfromthepurviewofcommoncarrierorcontractcarrierfor a periodoffiveyearsfromthedateofauthorizationsubjecttotheconditionsthat theentitymeetstheserviceobligationsasstipulatedunderregulation8.
(2) Incaseanentity islaying, building, operating orexpanding aCGD network beforethe appointeddayandhasbeenauthorizedby theCentralGovernmentor has been authorized by the Board under the Petroleum and Natural Gas RegulatoryBoard(AuthorizingEntitiestoLay,Build,Operateor ExpandCityor LocalNaturalGasDistributionNetworks)Regulations,2008,the periodof exclusivityfromthepurviewofcommoncarrierorcontractcarriershallbe-
(a) threeyearsfromthedateofissueoftheletterbytheBoardforallowingsuch exclusivityincasethe entityhasbeenoperatingtheCGDnetworkfor three yearsormorebeforetheappointedday;
(b) fiveyearsfromthedateofissueoftheletterbytheBoardforallowingsuch exclusivityincasetheentityhasbeenoperatingtheCGDnetworkforless thanthreeyearsbeforetheappointedday.
7. Specificperformancebond.
Entitylaying,building,operatingorexpandinga CGDnetworkbeforetheappointed dayandauthorizedbytheCentralGovernmentforsuchactivitiesshallberequired to furnishtotheBoard,a specificperformancebondlinkedtoallowingofexclusivity andequal totheamount asspecified under regulation 9ofthePetroleum and NaturalGasRegulatoryBoard(AuthorizingEntitiesto Lay,Build,Operateor Expand CityorLocalNaturalGasDistributionNetworks)Regulations,2008.
8.Serviceobligations.
(1) Theentityallowedexclusivityunderregulation6shallcomplywiththefollowing serviceobligationsduringtheexclusivityperiod,namely:-
(a)inrespectofanentityproposing tolay,build,operateorexpandaCGD networkaftertheappointeddayandwhichhasbeenauthorizedby theBoard underthePetroleumandNaturalGasRegulatoryBoard(AuthorizingEntities to Lay,Build,Operateor ExpandCityor LocalNaturalGasDistribution Networks)Regulations,2008,theentityshall-
(i)providedomesticPNGconnectionsasperthebid;
(ii)layandbuildsteelpipelineaspertheinch-kilometerbid;
(iii)reachallchargeareasorwardsintheauthorizedareathroughpipelines ofadequatesizeto meetthedemandof theconsumersin thesecharge areasorwards;and
(iv)provide piped natural gas connection on demand to a domestic consumerforcookingpurposeswithinadistanceoftwentyfivemeters ofthemeteringunitattheconsumer’sendtillthetap-offinthepipeline:
ProvidedthatthephysicalachievementshallbemonitoredbytheBoardona quarterlybasis;
(b) inrespectanentitylaying,building,operatingorexpandingaCGDNetwork beforetheappointeddayand whichhasbeeneitherauthorizedby theCentral Government or by the Board under the Petroleum and Natural Gas RegulatoryBoard(AuthorizingEntitiestoLay,Build,OperateorExpandCity orLocal Natural Gas Distribution Networks) Regulations, 2008, the entity shall-
(i)achievethetargetsin respectofprovidingPNGdomesticconnectionsand layingandbuildingsteelpipelineinchkilometeraspersub-clauses(i)and (ii)ofclause(a)ofsub-regulation(1)at thelevelsderivedbasedon the successfulbidsof similarplacedcitiesor localareasin termsof the populationasperthe censusof India2001orin the absenceofsuch similarlyplacedcitiesorareas,thecitieswhichcomeclosesttothese citiesor areasin termsof populationbysuitableextrapolationor interpolation;
(ii)reachallchargeareasorwardsthroughpipelinesofadequatesizeto meetthedemandoftheconsumersinthesechargeareasorwards;
(iii)providepipednaturalgasconnectionondemandto a domesticconsumer for cooking purposes within a distance of twenty five meters of the meteringunitattheconsumer-endtillthetap-offpointinthepipeline:
ProvidedthatthephysicalachievementshallbemonitoredbytheBoardona quarterlybasis.
(2) Duringtheperiodofexclusivityallowedunderregulation6,theauthorizedentity may supply compressed natural gas for dispensing either through CNG dispensingfacilitiesownedbyitselforbyanyotherentityandinthelattercase,
theotherentityshallberequiredto paythecompressionchargeforCNGto the authorizedentityandenterintoamutuallyagreeablecommercialcontractwith theauthorizedentityfor-
(a) eitherhavingtheonlinecompressionfacilitiesinstalledinitsowndispensing facilitieswhereintheonlinecompressionfacilitiesshallbeowned,installed andoperatedbytheauthorizedentity,or
(b)takedeliveryofCNGex-onlinecompressorstationof the authorizedentityfor subsequentdispensingintheauthorizedarea.
(3) Aftertheexpiryoftheexclusivityperiodallowedunderregulation6,anyentity usingtheCGDnetwork fortransportation ofnaturalgasmayusetheonline compressorfacilitiesof the authorizedentityagainstpaymentof compression chargeforCNGfordispensingofCNGeitherbyitselforbyanyotherentity.
9.Post-exclusivityperiod,thatis,beyondtheperiodofexclusivityallowedunder regulation6.
Theentityshall-
(1)continuetoexpandthenetworkofpipelinesbyincreasingthepenetrationwithin all charge areas based on the demand for PNG domestic, besides laying requisiteinfrastructureforadequateavailabilityofCNGandat adequatepressure intheCGDnetwork,whichcouldemergeoutofentity’sownrequirementorthat ofotherentitieswhichmayusetheCGDnetworkinthepost-exclusivityperiod.
(2)allowthirdpartyaccessonanon-discriminatorybasistoanyentityinitsCGD
networkaspertheprovisionsinthe-
(a)relevantregulationsonaccesscodeforCGDnetworks;and
(b)relevant regulations for declaring CGD networks as common carrier or contractcarrier;
(3) providepipednaturalgasconnectionondemandtoadomesticconsumerofany entitywithinanychargearea:
Providedthatthedistancefromthemeteringunitfromtheconsumer-endtothe tap-offpointinthepipelineshallnotbemorethantwentyfivemeters.
10.Cancellationofexclusivity.
(1) Theexclusivityallowedunderregulation5toanentityproposingtolay,build, operateorexpanda CGDnetworkaftertheappointeddayandwhichhas been authorized by the Board or laying, building, operating or expanding a CGD networkbeforetheappointeddayandwhichhasbeenauthorizedby theCentral Governmentorby theBoardunderthePetroleumandNaturalGasRegulatory Board(AuthorizingEntitiesto Lay,Build,Operateor ExpandCity orLocalNatural GasDistributionNetworks)Regulations,2008,shall be terminated,eitherfor the entireauthorizedareaorpartthereof,incasetheentityeitherrefusesorfailsto lay,buildor expandtheCGDnetworkto meetthenaturalgasdemand requirementsincludingthe requirementsof otherentitiesallowedto usetheCGD networkpostexclusivityprovidedunderregulation6.
(2)Non-compliancewiththeprovisionsunderregulation8orrepeatedviolationof thequalityof servicestandardsspecifiedunderthePetroleumand NaturalGas RegulatoryBoard(AuthorizingEntitiesto Lay, Build,Operateor ExpandCityor LocalNaturalGas DistributionNetworks)Regulations,2008shallresultin cancellationoftheexclusivity.
(3) The procedure with regards to the termination of exclusivity under sub- regulations(1)and(2)shallbeasunder,namely:-
(a)the Board shall issue a notice to the defaulting entity allowing it a reasonabletimeto fulfillits serviceobligationsundertheseregulationsand alsoasperthequalityofservicestandardsspecifiedinthePetroleumand
NaturalGasRegulatoryBoard(AuthorizingEntitiestoLay,Build,Operate orExpandCityorLocalNaturalGasDistributionNetworks)Regulations,
2008;
(b)nofurtheractionshallbetakenincaseremedialactiontothesatisfactionof theBoardistakenbytheentitywithinthespecifiedperiod;
(c)incase offailure totake remedial action bythe entity, the Board may encashtheperformancebondasperthefollowingbasis,namely:-
(i)twentyfivepercentoftheamountoftheperformancebondforthefirst default;and
(ii) fiftypercentoftheamountofperformancebondfortheseconddefault:
Providedthatthe entityshallmakegoodtheencashedperformancebondin eachof thecaseswithinaweekfailingwhichtheremainingamountofthe performancebondshall alsobe encashedandtheexclusivityincluding authorizationoftheentityshallbeterminated;
(iii) onehundredpercentoftheamountofperformancebondforthethird defaultandtheexclusivityshallalsobesimultaneouslyterminated;
(d) theentitiesauthorizedunderthePetroleumandNaturalGasRegulatory Board(AuthorizingEntitiestoLay,Build,Operateor ExpandCityorLocal NaturalGasDistributionNetworks)Regulations, 2008shallalsohaveto replenishthe performancebondwithinfifteendaysfailingwhichtheir authorizationshallalsobeterminated.
(4)The exclusivity allowed under regulation 6 to an entity either proposing to operatea CGDnetworkaftertheappointeddayandwhichhasbeenauthorized bytheBoard,orwhichisoperatingaCGDnetworkbeforetheappointedday andwhichhasbeenauthorizedbytheCentralGovernmentortheBoardunder
thePetroleumandNaturalGasRegulatoryBoard(AuthorizingEntitiesto Lay, Build,Operateor ExpandCityor LocalNaturalGasDistributionNetworks) Regulations,2008,shallbe terminatedincasetheentityfailsto complywiththe service obligations under these regulations oronrepeated violations ofthe qualityof service standardsasper the PetroleumandNaturalGasRegulatory Board (Authorizing Entities to Lay, Build, Operate or Expand City or Local NaturalGasDistributionNetworks)Regulations,2008.
(5)The procedure with regards to the termination of exclusivity under sub- regulation(4)shallbeasunder,namely:-
(a) theBoard shallissueanotice totheentityfornotmeeting theservice obligationsundertheseregulationsandalsoqualityof servicestandards specified under the Petroleum and Natural Gas Regulatory Board (AuthorizingEntitiesto Lay,Build,OperateorExpandCityorLocalNatural GasDistribution Networks) Regulations, 2008andallowitareasonable timetofulfillitsobligationsundertheseregulations;
(b) nofurtheractionshallbetakenincaseremedialactionistakentothe satisfactionoftheBoardbytheentitywithinthespecifiedperiod;
(c)incaseoffailureto takeremedialaction,theBoardmayencashthe performancebondonthefollowingbasis,namely:-
(i)twentyfivepercentoftheamountoftheperformancebondforthefirst default;and
(ii) fiftypercentoftheamountofperformancebondfortheseconddefault:
Providedthatthe entityshallmakegoodtheencashedperformancebondin eitherofthecaseswithina week,failingwhichtheremainingamountof the performancebondshall alsobe encashedandtheexclusivityincluding authorizationoftheentityshallbeterminated;
(iii) onehundredpercentoftheamountofperformancebondforthethird defaultandtheexclusivityshallalsobesimultaneouslyterminated;
(d) TheentitiesauthorizedunderthePetroleumandNaturalGasRegulatory Board(AuthorizingEntitiestoLay,Build,Operateor ExpandCityorLocal NaturalGasDistributionNetworks)Regulations, 2008shallalsohaveto replenishthe performancebondwithinfifteendaysfailingwhichtheir authorizationshallalsobeterminated;
(e) anyentitylosingitsexclusivityallowedunderregulation5shallalso automaticallyloseitsexclusivityallowedunderregulation6.
11.Miscellaneous.
Ifanydisputeariseswithregardstotheinterpretationofanyoftheprovisionsof theseregulations,thedecisionoftheBoardshallbefinal.
ScheduleA[see regulation4]
Rationaleforallowingexclusivitytolay,build,operateorexpandaCGDnetwork1
1Exclusivity-
a)forlaying,buildingorexpansionoftheCGDnetworkduringtheeconomiclife oftheproject;and
b)intermsofanexemptionfromthepurviewofthecontractcarriageorcommon carrierforalimitedperiodoftime-
is envisagedwitha viewtofacilitatethedevelopmentofa plannedandintegrated CGDnetworkwithappropriateprioritiesfor end-useof naturalgasas alsothe network spread besides providing incentive to the entity for investing in such project.
2Exclusivityaspersub-clausea)ofclause1isorshallbenecessarytofacilitatethe developmentandoperationofan integratednetworkby asingleentityasperthe prescribedtechnical standards,specificationsincludingsafetystandards.This shall alsoobviatemultipledigging-upoflanes,roads,etc.intheauthorizedarea.
3Exclusivityaspersub-clauseb)ofclause1isorshallbenecessaryduetothe followingreasons,namely:-
a)During the initial phase of the development of city or local natural gas distributionnetwork,thereshallbeaneedtohavea closesynchronization betweenthedevelopmentofrequisiteinfrastructureandtheramp-upin the natural gas volumes for different end-consumers in different areas. It is expected that the development of the city or local natural gas distribution
networkwouldbequickerifthesameisguidedbyentity’sownplan(whichis
1ThisScheduleAonlyexplainstherationaleforallowingexclusivity toentitiesforlaying,building, operatingorexpandingCGDNetworksandisnotpartoftheseregulations.Therefore,itdoesnot haveanylegalforceandshouldnotbequotedorrelieduponwhileinterpretingtheseregulations.
responsiblefor meetingvariousserviceobligations)ratherthantheexpectation ofotherpotentialmarketersofnaturalgasin thenetwork.Also,itshallbemore practicalfortheBoardto dealwithone entityratherthanmultipleentitiesto ensurea strictcompliancewiththeserviceobligationsby theentityintheinitial period;
b)duringsuchlimitedperiodofexclusivity,theauthorizedentitycouldbemade directlyresponsiblefor meetingthe desiredserviceobligations,viz.,achieving maximumPNGdomesticconnectionsandotherrelatedaspects;
c)besidessuchanapproachisalsolikelytoincentivizeinvestmentsinthiscapital intensivebusiness.
4Ideally, whiletheexclusivity aspersub-clause a)ofclause1shallbeforthe economiclifeof the project,theexclusivityasper sub-clauseb) of clause1shall dependuponvariousfactors,viz.,theprojectednaturalgasdemandbuild-upin the cityorlocalarea(whichinturnwoulddependuponthekeydriversfordemandin thatcityor localarea,suchas,levelofindustrialor commercialactivity,vehicular population and conversion of vehicles in to CNG, potential domestic PNG customers, consumer preferences, priceofalternative fuels,etc.),geographical spreadandpopulation,projectedcapitalcostoftheproject,investmentclimate, etc.However,consideringthatthesefactorsshallvaryfromcitytocity,a credible assessment of exclusivity period based on these factors may not be always practical.Thus,itisproposedthattheperiodofexclusivityatsub-clauseb)of clause1maybelimitedtofiveyearsforcaseswhereanentityproposestolay, build, operate orexpand aCGDnetwork. However, where anentityislaying, building,operatingorexpandinga CGDNetworkbeforetheappointeddayandhas beenauthorizedbytheCentralGovernmentorisauthorizedbytheBoardunder thePetroleum andNatural Gas Regulatory Board (Authorizing Entities toLay, Build,Operateor ExpandCityorLocalNaturalGasDistributionNetworks) Regulations,2008,theperiodofexclusivityshallbeforthreeyears(iftheentityhas
beenoperatingforthreeyearsormorebeforetheappointedday)orfiveyears(if theentityhasbeenoperatingforlessthanthreeyearsbeforetheappointedday).
[S-Admn/II/8/2007-Vol.I]
(AjayTyagi) Secretary