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Oil’s not well

Thanks to the government, the Petroleum & Natural Gas Regulatory Board is a toothless tiger. Paranjoy Guha Thakurta examines...

india Updated: Apr 10, 2008 21:44 IST

Set up an important regulatory institution. Do not empower it. Worse still, emasculate it. How? By manipulating the law to undermine its authority. This, in a nutshell, is the story of the Petroleum & Natural Gas Regulatory Board till now.

A bit of background information first. On All Fool’s Day, 2002, the BJP-led NDA government took a policy decision to do away with the administered pricing mechanism (APM) for petroleum products or a mechanism that enables the government of the day through the Union Ministry of Petroleum & Natural Gas to regulate the prices of petrol, diesel, cooking gas, kerosene and so on.

Given the fact that the prices of petroleum products are politically highly sensitive, the NDA government continued to administer the prices of key products despite its policy decision to the contrary. The UPA government did not formally reverse the decision to scrap the APM but continued to administer prices at the highest political level, usually, the Cabinet Committee on Economic Affairs.

Fast-forward to the last day of March 2006. Parliament enacts the Petroleum & Natural Gas Regulatory Board Act. On April 3 that year, the Act is published in the Gazette of India. The next step for the government is to notify the Act and supposedly leave the Board to go about its task. But wait. That does not happen, at least for a while.

On December 20 that year, the government puts out a policy for ‘development of natural gas pipelines and city/local natural gas distribution networks’. This is significant. Why? A number of important areas in the hydrocarbons industry have been taken out of the purview of the Board at the very outset, importantly, upstream production of oil and natural gas as well as the activities of oil refiners (that would include decisions on the location of refining facilities and refining margins).

What then was the Board supposed to do? The Act says the Board is supposed to regulate the distribution of natural gas through city/local networks, authorise entities to lay, build, operate and expand a common carrier or contract carrier, trunk pipelines as well as city/local networks and regulate transportation tariffs.

Fast-forward again to June 25, 2007: the government notifies the formation of the Board. Retired IAS officer Labanyendu Mansingh, former Secretary, Consumer Affairs, is appointed chairman of the Board. L.K. Singhvi, former chief commissioner of income-tax, Delhi, is appointed member, commercial and Bhagwat Singh Negi, former director (business development), GAIL (formerly Gas Authority of India Limited), is appointed member, infrastructure.

In July, two more Board members are appointed. Former journalist and researcher with the Nehru Memorial Museum & Library, Sudha Mahalingam is appointed member, distribution and Y.P.C. Dangay, who had worked with the Law Ministry, is made member, legal.

Now comes the strange part of the story. In June, the government notified only the constitution of the Board and not the Act itself. Yet, Section 3 of the Act clearly states that the Board can be set up only under the provisions of the Act. It was a classic ‘Catch-22’ situation, straight out of Joseph Heller’s novel. The Board was operational but it could not do anything because the Act itself had not been notified. Was the omission an oversight? There is reason to surmise that the omission was a deliberate one.

Mansingh reportedly wrote a series of angry letters urging the government to rectify the situation. Nothing happened for roughly three months. Eventually, on October 1, 2007, the Ministry rescinded the June notification and issued a fresh one notifying the Board as well as the Act. But once again, there was a catch. The entire Act was notified with the exception of one substantive portion — Section 16 — that empowered the Board to authorise the construction of natural gas trunk pipelines and city/local distribution networks. Why was this done?

Between June 25 and October 1, 2007, the Ministry of Petroleum & Natural Gas went ahead and authorised the construction of five major natural gas pipelines by GAIL and four by Reliance Industries Limited involving an investment of — hold it — not less than Rs 50,000 crore. In effect, what the government did was to leave nothing for the Board to do since all the major trunk pipelines required for the country in the near-term had already been authorised.

That’s not all. Significantly, all the nine gas pipelines were authorised without going through a process of competitive bidding. Section 4.1 of the natural gas distribution policy, on the other hand, provides detailed guidelines for selecting the entity that would build a pipeline through a transparent process of bidding.

The story does not end there. Section 11F of the Act specifies that the Board would supervise the marketing and retail service obligations of those who sell natural gas and petroleum products that are ‘notified’ by the ministry, which, in its infinite wisdom, has chosen not to notify even a single one of the 140-odd petroleum products that are sold. Thus, in January and February, when there were shortages of cooking gas in different parts of north India, the Board had no authority to intervene.

A few more facts are noteworthy. The Board had asked Shastri Bhavan to sanction 130 posts. So far only 31 posts have been sanctioned, most of them at a junior level. The ministry released a paltry sum of Rs 2 crore to the Board for the first time in April this year. Till then, it had no financial autonomy.

Whereas the salaries of the chairman and members were being paid for by the ministry, the rest of the staff of the Board are on lien from public sector undertakings like the Indian Oil Corporation and Hindustan Petroleum Corporation Limited, companies which the Board is supposed to regulate. For instance, four officers on special duty working with the Board continue to draw salaries from the companies they came from.

Moreover, the Board itself has been functioning out of premises provided by these same PSUs. It was first operating out of the office of the IOC in central Delhi. Since this office is currently being renovated, the Board has temporarily moved to premises being used by HPCL in east Delhi. Even the computers and the phones being used by the staffers of the Board are owned by these companies. What to talk about conflict of interest?

The government of the day had taken its own sweet time empowering the Securities & Exchange Board of India, the regulator of the capital markets. A huge financial scam made the powers-that-be wake up. Although the Monopolies & Restrictive Trade Practices Act was diluted and the MRTP Commission became a toothless tiger a long time ago, the government dragged its feet on strengthening the Competition Commission of India. Those who fail to learn lessons from history are condemned to repeat the mistakes of the past.

The moot point is why the government went through the charade of creating a body called the Petroleum & Natural Gas Regulatory Board when Minister Murli Deora and Secretary M.S. Srinivasan do not appear to be interested in wanting it to work, leave alone function effectively.

Paranjoy Guha Thakurta is Editor, Realpolitik