The Hindu Business Line : REGULATOR IN THE PIPELINE

At long last the downstream oil sector will get a regulator once Parliament passes the Petroleum and Natural Gas Regulatory Board Bill. It has taken the Government four years to get its act together on the issue — the first version of this Bill, called the Petroleum Regulatory Board Bill, was introduced in the Lok Sabha in May 2002. Since then the need for a regulator has become felt even more with the industry developing rapidly in recent years and even the usually laidback public sector oil companies turning aggressive in the market. The natural gas industry has also come to the forefront with the discovery of huge reserves in the country, the commissioning of the first LNG (liquefied natural gas) terminal in 2004 and the expansion of piped CNG network in several cities. This has been recognised by bringing city gas network and LNG terminals under the downstream regulator.

However, it is interesting to note that the proposed Petroleum and Natural Gas Regulatory Board will not regulate the upstream sector of exploration and production. Now, the Director-General of Hydrocarbons acts as the de facto upstream regulator albeit without teeth. Logically, this sector also should have been brought under the proposed regulator especially as the distinction between upstream and downstream companies is fast disappearing. While ONGC, the largest upstream player, is foraying aggressively into refining and marketing, the downstream biggies, such as Indian Oil and Hindustan Petroleum, are moving into exploration. In this backdrop, it may be better to have a single, unified regulator for the entire petroleum sector rather than two entities. Indeed, given the inter-linkages between the power, and oil and gas sectors, a single regulator for the entire energy sector appears ideal.

The presence of the proposed Regulatory Board will be felt most in the pipelines segment, set to see explosive growth. The regulator's calming presence will be crucial given the competing claims for cross-country pipeline rights especially for moving natural gas. It is imperative that the regulator not only quickly draws up the regulations for the pipeline sector but also ensures that they are fair. Given the profile and size of the competing players and the stakes involved in laying cross-country pipelines, this will easily be the first test for the Regulatory Board.

The passage of the Bill is the first reform-positive measure of the Government in the last few years for the oil industry, which badly lags behind other infrastructure sectors such as telecom when it comes to reforms. Hopefully, such critical issues as petroleum product pricing will also get the attention they deserve.

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