CGD Network - Balancing Exclusivity And Consumer Interests

• Published date: 03 April 2024
• Subject Matter: Energy and Natural Resources, Oil, Gas & Electricity
• Law Firm: Alaya Legal
• Author: Ms Suniti Kaur and Ashwini Panwar

Introduction

In 2006, the Government of India introduced the Policy for Development of Natural Gas Pipelines and City or Local Natural Gas Distribution Networks ('2006 Policy').

The 2006 Policy was and continues to be an enabler for the growth of pipeline infrastructure across the country to facilitate the evolution of a nationwide gas grid and growth of city or local gas distribution networks and aims to:

• promote investment from public as well as private sector in natural gas pipelines and city or local natural gas distribution networks,
• facilitate open access for all players to the pipeline network on a non-discriminatory basis,
• promote competition among entities, thereby avoiding any abuse of the dominant position by any entity, and
• secure the consumer interest regarding gas availability and reasonable tariffs for natural gas pipelines and city or local natural gas distribution networks.

The Petroleum and Natural Gas Regulatory Board ('PNGRB') was established per the Petroleum and Natural Gas Regulatory Board Act, 2006 ('PNGRB Act') to facilitate investments in the pipeline infrastructure sector while protecting the customers' interests.

Private sector participation in the development of the CGD network is sought to be incentivised by a grant of exclusivity to the entity authorised under the Petroleum and Natural Gas Regulatory Board (Exclusivity for City or Local Natural Gas Distribution Network) Regulations, 2008 ('Exclusivity Regulations')

for laying, building or expansion of the CGD network during the economic life of the project.

Further, the Board may provide exclusivity to an entity proposing to lay, build, operate or expand a CGD network from the purview of a common carrier or contract carrier for a limited period of time as long as the entity meets service obligations under the Exclusivity Regulations.

The said service obligations include the obligation to:

1. provide domestic PNG connections as per the bid;
2. lay and build steel pipeline as per the inch-kilometre bid;
3. reach all charge areas or wards in the authorized area through pipelines of adequate size to meet the demand of the consumers in these charge areas or wards; and
4. provide piped natural gas connection on demand to a domestic consumer for cooking purposes within a distance of twenty-five meters of the metering unit at the consumer's end till the tap-off in the pipeline:

In the case of AGP City Gas Private Limited and Ors. v. Petroleum and Natural Gas Regulatory Board and Ors. (MANU/DE/1829/2023) before the single judge bench of Delhi High Court, among other matters, the issue of 'exclusivity' and 'associated equipment' in relation to the CGD network was discussed in fair detail. Interesting and not-so-interesting arguments were extended on both sides. This article examines the provisions relating to 'exclusivity' under the Exclusivity Regulations and offers observations in light of the decision of the Delhi High Court.

Background

On June 09, 2022, PNGRB passed an Order stating:

'AGP (read, Appellant or Petitioner No. 1) does not have the CGD Network in terms of Section 2(i) of the Act and, therefore, AGP is not ready to supply to the ECIL (read, Respondent No. 3) through their CGD network, and the plea for infrastructure exclusivity is not accepted as infrastructure exclusivity is limited to laying, building or operating a CGD network, and since cascade/truck mode transportation do not form part of CGD networks hence there is no encroachment of AGP's infrastructure exclusivity. Thus, the right of the entity does not outweigh the rights of the consumer as per the PNGRB Act and extant Regulations framed thereunder.'

A Writ Petition was filed before the High Court of Delhi against the foregoing Order by AGP, the Appellant.

Chronology of Events:

April 06 ,2018: PNGRB issued bid documents for the 9th CGD Bid Round.

May 31, 2018: An Addendum to the aforesaid bid document was published, which stipulated that the terms 'CNG Stations', 'compressed natural gas', and 'natural gas' would have to be understood in light of Sections 2(k), 2(l) and 2(za) of the PNGRB Act.

(k) 'CNG station' means filling station where one or more dispensing units are provided for sale of compressed natural gas;

(l) 'compressed natural gas or CNG' means natural gas used as fuel for vehicles, typically compressed to the pressure ranging from 200 to 250 bars in the gaseous state;

(za)'natural gas' means gas obtained from bore-holes and consisting primarily of hydrocarbons and includes-

(i) gas in liquid state, namely, liquefied natural gas and degasified liquefied natural gas,

(ii) compressed natural gas,

(iii) gas imported through transnational pipe lines, including CNG or liquefied natural gas,

(iv) gas recovered from gas hydrates as natural gas,

(v) methane obtained from coal seams, namely, coal bed methane, but does not include helium occurring in association with such hydrocarbons;

September 28, 2018: A consortium of AG&P LNG Marketing Pte. Ltd. and Atlantic Gulf and Pacific Company of Manila Inc. was declared successful in respect of the GAs of Jaisalmer, Jodhpur, Kanchipuram and...