presentation on infraline conference mohitsaraf-luthra
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8/7/2019 Presentation on Infraline conference MohitSaraf-Luthra
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Regulatory Frameworkfor E&P Activities
Mohit Saraf
Partner
Luthra and LuthraLaw Offices
December 11th, 2004
INFRALINE CONFERENCE
DISCOVERY TO DELIVERY: INDIAS
UPSTREAM OIL AND GAS SECTOR
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Regulatory Framework forUpstream Exploration
Constitution of India (CoI)
Oilfields (Regulation and Development)Act, 1948
New Exploration Licensing Policy(NELP)
Petroleum and Natural Gas Rules, 1959
Territorial Waters, Continental Shelf,
Exclusive Economic Zone And OtherMaritime Zones Act, 1976
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Jurisdiction over Oil andNatural Gas Resources
Jurisdiction to regulate oilfields vested with Central
Government
CoI: Entry 53 of List I
Regulation and development of oilfields and mineral
oil resources; petroleum and petroleum products CoI: Entry 25 of List II
Gas and Gas Works
Presidential reference, Supreme Court judgment
Natural gas- a petroleum product and hence, a
central subject
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Jurisdiction over Oil andNatural Gas Resources
Presidential reference (contd.)
Right in natural gas and oil resources as
publici juris
Upstream regulation of exploration andtransmission of natural gas also in central
domain.
Jurisdiction to regulate gas clearly
identified with Centre by the judgment Paved the way for a unified central legal
framework for the energy sector
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The Oilfields (Regulation &Development) Act, 1948
Basic enabling statute for licensing andleasing of petroleum and gas blocks bythe appropriate government
Covers mineral oils which is defined asincluding natural gas and petroleum[S.3(c)]
Mining lease is defined exhaustively to
cover all forms of exploring and exploitingmineral oils and all purposes connectedthereto [S.3(d)]
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The Oilfields (Regulation &Development) Act, 1948
Empowers central government to makerules with regard to mining leases [S.5]
Also empowers central government to
make rules for the development of mineraloil [S.6]
NELP Enabling Provisions
Power to vary royalty or exempt it
altogether [S.6A] PSC additional terms and conditions to
PEL [S.12]
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New Exploration LicensingPolicy
Uses auctions to allocate petroleum blocks
thus bringing benefits of transparency and
efficiency
Identifies biddable areas. Identifies commercial terms on which the
bid would be evaluated including profit
sharing
Lays down the bidding procedure
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The Petroleum and NaturalGas Rules, 1959
Rules provide framework for grant ofexploration licenses and mining leases
Salient features of the Rules:
Prohibition on prospecting and miningexcept under a license or lease grantedunder the rules [Rule 4]
Central Government has the power togrant licenses or leases in respect of any
land vested with it or minerals underlyingthe ocean within the territorial waters orthe continental shelf [Rule 5(i)]
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The Petroleum and NaturalGas Rules, 1959
Salient features of Rules (contd)
State government has power to grantlicense or lease over lands vested with it
[Rule 5(ii)] Person obtaining exploration license
obtains the exclusive right to a lease forproducing (i.e. extracting) oil/gas over anypart of area covered in license
As Licensee, prospector required tofurnish security deposit and annual licensefees for exploration license;
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The Petroleum and NaturalGas Rules, 1959
Salient features of Rules (contd)
License fees increase every year in a pre-determined manner
As Lessee, producer required to furnishsecurity deposit and dead rent or royalty(payable to appropriate government)whichever is higher as well as surface rent(payable to SG)
Increasing Licensing fee structure anddead rent payments incentivise earlyexploitation of license and leases
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The Petroleum and NaturalGas Rules, 1959
Salient features of Rules (contd)
Provides for arbitration of disputes which
may arise between the Government and
the licensee or lessee
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Territorial Waters, Continental Shelf, ExclusiveEconomic Zone And Other Maritime Zones Act,
1976
Article 297 of the Constitution vests
resources found in these areas with
Central government
No exploration in the Continental shelfand exclusive economic zone permitted
without Central Governments permission
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Regulating the upstream sector
Creation of an independent and impartial upstream
regulator is a key challenge for regulation in
upstream sector
Currently MoPNG is in charge of regulating
upstream sector. Director General of
Hydrocarbons performs technical advisory function
But government has a significant ownership stake
in certain upstream companies
Regulatory functions should not be discharged bythe government when it is also competing with
private players. Will avoid conflict of interest
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Regulating the upstream sector
This has been achieved in other infrastructuresectors like Electricity and Telecom by constitutionof independent regulatory bodies throughcomprehensive statutory framework
The downstream sector will soon see theintroduction of a omnibus regulator for oil andnatural gas (Petroleum Regulatory Board Bill2002)
Independent regulator for upstream would assure
private players that they would be provided alevel playing field. This should attract greatercompetition and the benefits of this greatercompetition would increase value for all thestakeholders
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Regulating the upstream sector
Other areas which would benefit from such
regulatory oversight include:
Better appreciation of operators commercial
interest and minimizes opportunities for rentseeking behavior
Coordination with downstream regulation
Acting against anti-competitive practices
Role as arbitrator in case of dispute arisingbetween operator entities and other stake
holders; minimizes delay in exploitation of
resources due to dispute
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Regulating the upstream sector
Options for creation of independent regulatory
body
Create a new regulatory authority and vest
it with power to implement licensing policyas well as regulatory functions
Increase the independence of DGH
possibly through separate statutory
framework and confer additional powerson it to enable it to discharge role of
upstream regulator
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"Let me tell you something that we
Israelis have against Moses. He took us
40 years through the desert in order to
bring us to the one spot in the MiddleEast that has no oil!"
-Golda Meir (Israeli founder and primeminister)
The gods have been kinder in our case!Lets ensure that their bounty reaches the
people
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