NATURAL GAS SECTOR

1.1 A brief outline of the countrys natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; importation and exportation of natural gas, including liquefied natural gas (LNG) liquefaction and export facilities, and/or receiving and re-gasification facilities (LNG facilities); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading. Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL), both public sector undertakings, were the only two major entities involved in exploration and production of Natural Gas till the 1990s. The Government allowed private participation in the mid 1990s and has also divested a part of its shareholding in ONGC to the general public. GAIL India Limited (GAIL), formerly known as Gas Authority of India Limited, was set up by the Government of India in 1984 to create infrastructure for sustained development of gas market in the country. GAIL is the principal gas transmission and marketing company in India. GAIL owns around 4,600 km of pipeline out of the total of 6,500 km of pipeline in the country. OIL also has a marginal share in marketing of natural gas. Private participation in marketing and transmission of natural gas is also allowed. As per the information available the total proven reserves of natural gas in India in the year 2004 were approximately 930 billion cubic meters. Over 70% of the countrys natural gas is produced offshore. Most of the natural gas reserves in India are found on the west coast. Significant discoveries of natural gas reserves have also been made on the eastern coast mostly around the Krishna-Godavari basin. In September 2005, ONGC announced discovery of around 3-6 trillion cubic feet (TCF) of associated gas reserves in the Krishna-Godavari basin that is adjacent to Reliance Industries block, where 7 TCF of gas had been discovered. Onshore natural gas reserves were found in the States of Tripura, Assam, Arunachal Pradesh, Nagaland, Andhra Pradesh, Tamil Nadu, Gujarat and Rajasthan. However, indigenous production of natural gas is not sufficient to meet the growing demand for natural gas. A major part of the demand is met through imports of gas from countries rich in natural gas. There are proposals to import natural gas through pipelines from Iran, Myanmar, Bangladesh and Turkmenistan and necessary discussions with the concerned countries are underway. Natural gas is also imported in form of Liquefied Natural gas (LNG) from Iran, Quatar etc. GAIL, ONGC, Indian Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited (BPCL) together promoted Petronet LNG Ltd. (PLL) with an objective of securing LNG supply at a competitive price and for the development of re-gasification facilities in India. PLL has setup its first LNG Terminal at Dahej in the State of Gujarat with the capacity of 5 million metric tones per annum (MMTPA) and is in the process of setting up another terminal in the State of Kochi in Kerala with the capacity of 2.5 MMTPA. In addition, private players have set up or are in the process of setting up LNG import terminals and re-gasification units in India. Shell India Private Limited (Shell India) has a 2.5 MMTPA capacity LNG terminal at Hazira in the State of Gujarat. Other LNG terminals under implementation/consideration are the Dabhol LNG Terminal by Dabhol Power, at Mangalore, Kakinada, Ennore and Trombay etc. 1.2 To what extent are the countrys energy requirements met using natural gas (including LNG)?

The consumption of natural gas has grown significantly during the past decade from approximately 16,407 million cubic meters (MCM) in the year ending March 31, 1994 to approximately 29,972 MCM for the year ending March 31, 2003. Despite this high rate of growth, natural gas consumption has increased from 6.4 per cent for the year ending December 31, 1993 to 7.8 per cent in 2003. Presently natural gas accounts for approximately 8.9% of the total primary commercial needs in the country. Efficiency, varied cost-effective applications and environmental concerns are some of the primary reasons for the growing importance of natural gas. As per the Hydrocarbon Vision 2025, the share of oil & gas as the primary energy is expected to increase to 45% by the year 2025. While the share of gas would increase to 20%, the share of oil would decrease to 25%. Currently coal is the principal source of energy in India amounting to over 50% of the total energy consumption. The total consumption of natural gas for energy purposes (i.e. for electricity, as industrial fuel, domestic fuel etc.) in the year 2005-06 was 22,062 MCM (71.1%) whereas for non-energy purposes (i.e. for production of fertilizers) was 8,973 MCM (28.9%). 1.3 To what extent are the countrys natural gas requirements met through domestic natural gas production? As per the figures available, gross production of natural gas was approximately 32.202 Billion Cubic Meters (BCM) for the year 2005-06. The actual natural gas (both onshore and offshore) during AprilAugust 2006 was 12,812 MCM which is 3.4% less than the period in the preceding year and lower than the expected production of 13,027 MCM. The natural gas produced in India does not cater to the total demand. The total demand of natural gas was 150 million standard cubic meters per day (MMSCMD) in 2004 with only 54% being met through domestic sources. In order to meet the growing demand, natural gas is imported in the form of LNG from Iran, Abu Dhabi, Saudi Arabia and Quatar. Despite imports of LNG, demand remains unmet. The demand for natural gas for the current year is expected to be around 8,150 million standard cubic feet per day (MMSCFD) whereas the production is expected to be at 4,300 MMSCFD. There are proposals to import gas from Iran, Myanmar, Bangladesh, and Turkmenistan through pipelines. In order to encourage gas imports, the Government of India has kept import of LNG under open general licence (OGL) category and has permitted 100% FDI. 1.4 To what extent is the countrys natural gas production exported (pipeline or LNG)?

Presently natural gas is imported in order to meet the growing needs. Only, minimal quantities of Liquefied Petroleum Gas (LPG) are exported. In 2004-05, 306,000 tonnes of LPG was exported.

2.1 Outline broadly the legal/statutory and organisational framework for the exploration and production (development) of natural gas reserves including: principal legislation; in whom the States mineral rights to natural gas are vested; Government authority or authorities responsible for the regulation of natural gas development; and current major initiatives or policies of the Government (if any) in relation to natural gas development. The legal/statutory framework for exploration and production of natural gas is mainly governed by The Oilfields (Regulations and Development) Act, 1948 (Oilfields Act); and The Petroleum and Natural Gas Rules, 1959 (PNG Rules) framed under the provisions of the Oilfields Act. The Oilfields Act provides for regulation of oilfields (the definition of which covers gas fields) and for the development of mineral oil (the definition of which covers natural gas) resources. The PNG Rules, 1959 regulate the granting of exploration licences and mining leases in respect of petroleum and natural gas that belongs to Government, and for conservation and development thereof. A new legislation called the Petroleum &

Natural Gas Regulatory Board Act, 2006 (Regulatory Board Act) has been passed by the legislature and has been given assent to by the President on 31st March, 2006 but has not been implemented as yet. The Regulatory Board Act provides for the establishment of Petroleum and Natural Gas Regulatory Board (Board) to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as to protect the interests of consumers and entities engaged in specified activities relating to petroleum, petroleum products and natural gas and to ensure uninterrupted and adequate supply of petroleum, petroleum products and natural gas in all parts of the country and to promote competitive markets and for matters connected therewith or incidental thereto. On implementation of the Regulatory Board Act, India will have an independent regulator for gas and petroleum. In addition to the above, other legislations/statutes that affect the natural gas sector are the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 which provides for the grant of a licence by the Government to explore and exploit the resources of the continental shelf and exclusive economic zone; the Petroleum Act, 1934 (Petroleum Act); the Petroleum and Natural Gas Rules, 1976 as amended by Petroleum and Natural gas Rules, 2002 (PNG Rules, 2002) which relate to transmission, distribution and marketing of natural gas, etc. as detailed in question 2.11 below. The Ministry of Petroleum and Natural Gas (MOPNG) is the administrative body and is entrusted with the responsibility related to exploration and production of oil and natural gas, their refining, distribution and marketing, import, export, and conservation of petroleum products and LNG. With a view to promote sound management of the Indian petroleum and natural gas resources having a balanced regard to the environment, safety, technological and economic aspects of the petroleum activity, the MOPNG constituted the Directorate General of Hydrocarbons (DGH). DGH personnel have been appointed by MOPNG to serve as Chairman / Members / Alternate Members in various Management Committees of Discovered Fields & Exploration Blocks, on behalf of Government of India. The role of such personnel are to ensure optimum exploitation, to review/approve development plans, work programmes, budget, reservoir evaluation and to advise on mid-course corrections with regard to the discovered fields and appraisal of work programme and monitoring of exploration activities in relation to exploration blocks. The Government launched the New Exploration Licensing Policy (NELP) in the year 1997 for accelerating the pace of hydrocarbon exploration in the country. Till now blocks have been allotted by the Government to the national oil companies and to private entities for exploration and production under five rounds of NELP and recently bids were invited for the sixth round of NELP. Under the NELP, the successful parties are required to enter into a production sharing contract with the Government. In addition, the Government frames policies for exploration, production, transmission, distribution, marketing of natural gas. Natural Gas Pipeline Policy and policy for import of LNG is in the process of finalisation. The Natural Gas Pipeline Policy aims to develop pipeline infrastructure and standards for interconnectivity, common carriage, capacity for transmission and regulation of tariffs. 2.2 How are the States mineral rights to develop natural gas reserves transferred to investors or companies (participants) (e.g. license, concession, service contract, contractual rights under Production Sharing Agreement?) and what is the legal status of those rights or interests under domestic law? The PNG Rules makes it obligatory to obtain a licence prior to undertaking exploration of natural gas and mining lease for production of natural gas and petroleum. Under the NELP, the rights of the Government to develop natural gas are transferred to the investor through a production sharing contract. Rights and privileges obtained under a licences or a production sharing contract are enforceable under the Indian law.

2.3 If different authorisations are issued in respect of different stages of development (e.g., exploration or production arrangements), please specify those authorisations and briefly summarise the most important (standard) terms (such as term/duration, scope of rights, expenditure obligations). The Government grants a licence for the purpose of petroleum exploration. Once natural gas is discovered in the block/area allotted under the licence, a mining lease is granted to the party. The licence and the mining lease are granted under the provisions of the Oilfields Act and the PNG Rules framed under the Oilfields Act. Some of the standard terms used in the model production sharing contract are Exploration Period, which is 4 contract years for the first phase of exploration (4 contract years in case of deep water exploration) and 3 contract years for the second phase of exploration; Development and Exploration Period, which is 20 years in case of associated natural gas and 30 years in case of nonassociated natural gas (the term can be extended by mutual agreement); Commercial production which means production and delivery of natural gas; and the right of the participant to assign or transfer the contract, terminate the contract, to repatriate the profits, etc. 2.4 To what extent, if any, does the State have an ownership interest, or seek to participate, in the development of natural gas reserves (whether as a matter of law or policy)? As a matter of law, the ownership interest in the natural gas and petroleum is that of the State. This can be inferred from the provisions of the Petroleum Act and the Oilfields Act. The State however participates through State-owned companies like OIL, ONGC and others in the development of natural gas. 2.5 How does the State derive value from natural gas development (e.g. royalty, share of production, taxes)? The Oilfields Act provides for payment of royalty to the Government by the licensee or the lessee. Under the NELP, the Government of India gets royalty payments from the participants at the agreed rate under the production sharing contract. The model production sharing contract provides the rate for payment of royalty to the Government (Lessor) for royalty at the rate of ten per cent (10%) of the well-head value of natural gas for offshore and onshore areas. The Government also has a share in the total production which may be either in cash or kind. 2.6 Are there any restrictions on the export of production?

As per the NELP, the Indian domestic market shall have the first call on the utilisation of natural gas discovered and produced. The utilisation of natural gas is required to be as per the Governments policy. 2.7 Are there any currency exchange restrictions, or restrictions on the transfer of funds derived from production out of the jurisdiction? Funds derived from the production are easily transferable subject to exchange control compliance. 2.8 What restrictions (if any) apply to the transfer or disposal of natural gas development rights or interests? The PNG Rules provides a restriction on assignment or transfer of rights, title and interest in respect of licences, leases, land and minerals underlying the ocean within the territorial waters or the continental shelf of India. Prior written consent of the Central Government is required in the case of land covered by a licence or lease granted by the Central Government. In the case of land covered by a licence or lease

granted by the State Government, written consent of the Central Government has to be first obtained through the State Government. Under the NELP the licensee may assign, or transfer, a part or all of its participating interest, with the prior written consent of the Government subject to the terms of the production sharing contract. The Government does not unreasonably withhold its consent. The production sharing contract may also be terminated with prior notice to the Government subject to the terms and conditions contained therein. Under the Indian law, assignment of obligations requires prior consent from the assignee. 2.9 Are participants obliged to provide any security or guarantees in relation to natural gas development? Each of the licensee/contracting entities are required to procure and deliver to the Government within the time frame stipulated, an irrevocable, unconditional bank guarantee in favour of the Government for an amount of 35% of the total estimated annual expenditure and a financial and performance guarantee from a parent company or where there is no such parent company, from the licensee/contracting company itself. 2.10 Can rights to develop natural gas reserves granted to a participant be pledged for security, or booked for accounting purposes under domestic law? There are no specific restrictions under law regarding pledging of rights to develop natural gas reserves. Since the licensee or the lessee may assign or transfer its rights after obtaining prior consent of the Government, in our opinion the rights to develop natural gas reserves granted to a participant may be pledged after obtaining the requisite consent from the Government. 2.11 In addition to those rights/authorisations required to explore for and produce natural gas, what other principal Government authorisations are required to develop natural gas reserves (e.g. environmental, occupational health and safety) and from whom are these authorisations to be obtained? In addition to the authorisations stated in question 2.1 above, other approvals, authorisations, clearances that may be required are: (a) Environmental: Approval from the Ministry of Environment and Forest under the provisions of the Environment Protection Act, 1986; Consent from Central and/or the State Pollution Control Board under the provisions of Air (Prevention and Control of Pollution) Act, 1981 and the Water (Prevention and Control of Pollution) Act, 1974. (b) Labour Law: The provisions of the labour related statues such as Payment of Wages Act, 1936; Payment of Gratuity Act, 1972; Payment of Bonus Act, 1965; The Employers Liability Act, 1938; Employees Provident Fund and Miscellaneous Provisions Act, 1952; etc. will have to be complied with. Registration with the State Government under the Factories Act, 1948 may also be required. (c) Safety Related Laws: The provisions of Explosives Act, 1884; Manufacture, Storage and Import of Hazardous Chemical Rules, 1989 etc. will have to be complied with as far as applicable. (d) Local Laws: In addition to the above and depending upon the state in which exploration area is situated, local and municipal related laws will also have to be complied with.

2.12 Is there any legislation or framework relating to the abandonment or decommissioning of physical structures used in natural gas development? If so, what are the principal features/requirements of the legislation? There is no legislation in this regard. However, the Production Sharing Contracts under the NELP casts as an obligation on the participant, the restoration of the site.

3.1 Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of natural gas (including LNG). As there are no specific statutes governing the importation of natural gas, The Customs Act, 1962 (Customs Act) and the Foreign Trade Policy of the Government of India governs the importation of natural gas. The provisions of the Cutoms Tariff Act, 1975 (Customs Tariff Act) govern the customs duty payable on importation of natural gas. Presently, only LNG is imported. Pipeline imports are only at the proposal stage. India is considering importing gas from Iran and Turkmenistan by pipelines through Pakistan and Afghanistan. India also plans to import gas from Myanmar through Bangladesh via a 900 km pipeline. As per the Foreign Trade Policy 2004-2009, the importation of natural gas is free and does not require any importexport licence. The custom duty under the Customs Tariff Act, 1975 is payable on LNG imports. The basic customs duty is 10% and an educational cess @ 2% is charged on the basic customs duty. Vide Notification dated 1 March, 2002 bearing number 21/2002 (as amended), the Government has granted an exemption of 50% on the basic customs duty on LNG. The Shipping Ministry had issued new guidelines for LNG imports. As per the new guidelines LNG imports could be made only on a FoB (free-on-board) basis and all the ships should fly Indian flags, and employ Indian officers on board. However, in December 2005 the government decided to allow foreign flag vessels to import LNG to reduce the cost of LNG transportation into the country. The government wants to employ foreign flag vessels for LNG import as employing an Indian flag vessel involves additional taxes and operational constraints. 4.1 Outline broadly the ownership, organisational and regulatory framework in relation to transportation pipelines and associated infrastructure (such as natural gas processing and storage facilities). The gas transmission and distribution network is largely owned by GAIL. The largest pipeline system in India is the HBJ (HaziraBijaipurJagdishpur) trunk pipeline system, which is more than 2,000 km long. In addition, there are regional gas grids of varying sizes in Gujarat (Cambay Basin), Andhra Pradesh (KrishnaGodavari Basin), Assam (AssamArakan Basin), Maharashtra (ex-Uran terminal), Rajasthan (Jaisalmer Basin), Tamil Nadu (Cauvery Basin), and Tripura (Arakan Basin). Natural gas for domestic purpose is also being supplied through pipelines in cities like Mumbai and Delhi. Construction of a National Gas Grid to connect gas supply points, from LNG as well as NELP fields with consuming centres, is one of the major priorities GAIL has unveiled, with plans for the construction of over 7,000 km of pipelines for a cost of about $4.5 billion by 2008. The Petroleum and Mining Pipeline (Acquisition of Right of Users in Land) Act, 1962 (Pipeline Act) has provisions for acquisitions of right of way for laying transportation pipelines. The Pipeline Act requires obtaining prior approval from the Central Government before the actual construction and laying

of the pipeline is undertaken. The acquisition of right of way under the Pipeline Act will be subject to conditions which may include the sharing of portions of acquired rights of way falling within the forest areas, wild-life/marine sanctuaries/parks, prohibited/restricted areas, etc. with other interested parties. In addition, other authorisations, clearances under the Forest (Conservation) Act, 1980 such as environmental, pollution control etc. may be required for stetting up and operating pipelines. The Regulatory Board Act is aimed at establishing an independent regulator which will oversee the functions such as authorisation to lay pipelines, access to existing and future gas pipelines on a nondiscriminatory open access basis, with level a playing field for all users, regulation of transportation rates for gas transmission or city distribution pipelines and separation of transmission and trading functions. The Government will soon finalise a policy for laying gas pipelines. A draft Natural Gas Pipeline Policy has already been notified on September 29, 2003, proposing the development of a gas pipeline infrastructure on a common carrier principle and for systematic inter-connectivity between the sources of gas and the user points. Presently, India does not have any major storage facilities for natural gas. However, GAIL has recently developed the technology of Adsorbed Natural Gas, which offers substantial storage of natural gas at a pressure of 35 kg/cm. 4.2 What Governmental authorisations (including any applicable environmental authorisations) are required to construct and operate natural gas transportation pipelines and associated infrastructure? The Governmental authorisations which are required to construct and operate natural gas pipelines and associated infrastructure have already been discussed in question 4.1 above. In addition clearances, approvals mentioned under question 2.11 may also be required. The Petroleum and Natural Gas Regulatory Board Act, 2006 provides for comprehensive authorisations to lay, build, and operate or expand any pipeline. This statute has received the assent of president and will soon be implemented. 4.3 In general, how does an entity obtain the necessary land (or other) rights to construct natural gas transportation pipelines or associated infrastructure? Do Government authorities have any powers of compulsory acquisition to facilitate land access? The Government of India or State Government acquires the land for public purposes, which is governed by the provisions of the Land Acquisition Act, 1894. Also, the right of way for laying transportation pipelines can be acquired under the provisions of the Pipeline Act. 4.4 How is access to natural gas transportation pipelines and associated infrastructure organised? The access to existing and future gas pipelines is based on the contractual relationship between parties. Currently, open access is allowed on a limited scale and is governed by contractual relationship between parties. GAIL regulates access to the natural gas transportation system on a commercial basis as far as it relates to supply by its pipelines. The Regulatory Board Act gives power to the Board for regulating open access and transportation rates for the common carrier or contract carrier. 4.5 To what degree are natural gas transportation pipelines integrated or interconnected, and how is co-operation between different transportation systems established and regulated?

Presently, there is no interconnectivity between the different pipeline networks. However, the same has been proposed under the Natural Gas Pipeline Policy, that all new pipelines will be on a nondiscriminatory open access basis. The Regulatory Board Act gives power to the Board for regulating open access and transportation rates for the common carrier or contract carrier. 4.6 Outline any third-party access regime/rights in respect of natural gas transportation and associated infrastructure. For example, can the regulator or a new customer wishing to transport natural gas compel or require the operator/owner of a natural gas transportation pipeline or associated infrastructure to grant capacity or expand its facilities in order to accommodate the new customer? If so, how are the costs (including costs of interconnection, capacity reservation or facility expansions) allocated? The pipeline access issues are purely contractual. Once the Regulatory Board Act has been implemented, the Board formed under the provisions of the Regulatory Board Act will be the regulator for the issues relating to transmission of pipeline. 4.7 Are parties free to agree the terms upon which natural gas is to be transported or are the terms (including costs/tariffs which may be charged) regulated? At present, the parties are free to determine the terms and conditions upon which natural gas is to be transported. However, the Board to be constituted under the provisions of the Regulatory Board Act has the power to regulate transportation of natural gas through pipelines including the tariff to be charged for the same. 5.1 Outline broadly the ownership, organisational and regulatory framework in relation to the natural gas transmission/distribution network. GAIL is Indias principal gas transmission, supply and distribution company. GAIL is the owner and operator of India's largest gas transmission network, which is around 4,600 km of pipeline. ONGC is also a major player in the field of supply and distribution of natural gas. ONGC and GAIL are Government of India undertakings. There are some private players as well, such as Gujarat State Petroleum Limited in Gujarat, Mahanagar Gas Limited in Mumbai, Indraprastha Gas Limited in Delhi, etc. for the transmission and distribution of natural gas. At present, there is no regulatory framework for the transmission of natural gas. The Regulatory Board Act, once implemented will regulate the transmission and distribution of Natural Gas. 5.2 What Governmental authorisations (including any applicable environmental authorisations) are required to operate a distribution network? As per the Regulatory Board Act authorisation and registration is required to lay, build, operate or expand any pipeline as a common carrier or contract and to lay, build, operate or expand any city or local natural gas distribution network. An application in writing to the Board has to be made for obtaining authorisations under the said Act. The said Act has received Presidential Assent but is yet to be implemented. At present, there are no specific rules or regulations that govern operation and distribution networks. 5.3 How is access to the natural gas distribution network organised?

Open access is one of the issues in the countrys Natural Gas Pipeline Policy. The Board constituted under the Regulatory Board Act may also take actions based on the above-named policy.

5.4 Can the regulator require a distributor to grant capacity or expand its system in order to accommodate new customers? There are no such obligations at present. 5.5 What fees are charged for accessing the distribution network, and are these fees regulated?

As stated above, presently all aspects of transmission / distribution are governed by the terms and conditions of the inter se agreement. The Board to be constituted under the Regulatory Board Act has the power to regulate issues relating to transmission and distribution of natural gas. 5.6 Are there any restrictions or limitations in relation to acquiring an interest in a gas utility, or the transfer of assets forming part of the distribution network (whether directly or indirectly)? There are no restrictions or limitations in relation to acquiring an interest in a gas utility. The same is presently governed by the general corporate laws. Please refer to question 8.5 below. 6.1 Outline broadly the ownership, organisational and regulatory framework in relation to natural gas trading. Please include details of current major initiatives or policies of the Government or regulator (if any) relating to natural gas trading. Presently, Natural gas trading is in its initial phase of development. A memorandum of understanding was signed between GAIL and Natural Commodity and Derivatives Exchange Limited (NCDEX) to work jointly for developing a spot market for natural gas. As per the memorandum of understanding, GAIL is to play the role of supplier of natural gas. However, as per the latest information available, there has been a delay in securing a formal approval by GAIL from its board of directors that is withholding NCDEX from launching spot trading in natural gas. Multi Commodity Exchange of India Limited (MCX) has started online trading in natural gas since June 2006 and now ranks second in natural gas trading in terms of volume traded. In addition, GAIL, OIL and other public and private sector companies are also engaged in marketing of natural gas. 6.2 What range of natural gas commodities can be traded? For example, can only bundled products (i.e., the natural gas commodity and the distribution thereof) be traded? Natural gas is generally being traded as a bundled product only. However, entities are examining the possibility and pros and cons of selling natural gas as an unbundled product. 7.1 Outline broadly the ownership, organisational and regulatory framework in relation to LNG facilities. LNG facilities include LNG terminals for receiving and storing of LNG, regasification facility and transportation of regasified natural gas. At present there are two operational LNG facilities in India. One at Dahej in the State of Gujarat is owned by PLL and the second one at Hazira, Gujarat is owned by Shell India. GAIL is the sole entity for distributing natural gas from the Dahej terminal. Gujarat State Petronet Limited, which is a sole transmission company, is responsible for transmission of gas from Hazira. Presently, there are no regulatory or organisational frameworks with regard to LNG facilities. General laws relating to companies and setting up of industrial units apply. The Regulatory Board Act, which has

not been implemented as of yet provides for registration of entities for establishing and operating LNG terminals. 7.2 What Governmental authorisations are required to construct and operate LNG facilities?

Please refer to questions 2.1, 2.11 and 4.1 above. 7.3 Is there any regulation of the price or terms of service in the LNG sector?

After the deregulation of the petroleum sector with the government completely dismantling the administered pricing mechanism the prices for natural gas are being market determined and the marketing companies are free to set prices subject to the terms of the production sharing contracts. 8.1 Which Governmental authority or authorities are responsible for the regulation of competition aspects, or anti-competitive practices, in the natural gas sector? At present competition aspects and restrictive trade practices are governed by the Monopolies and Restrictive Trade Practices, 1969 (MRTP Act) and the MRTP Commission established under the provisions of the MRTP Act is the adjudicating authority for such matters. A new legislation called the Competition Act, 2002 (Competition Act) has been enacted but has not been implemented in totality as yet. Once fully implemented, the Competition Act will repeal the MRTP Act and govern competition issues such as anti-competitive agreements, abuse of dominant position, and combinations of entities and the Competition Commission of India (CCI) established under the provisions of the Competition Act will be the regulatory body. The Regulatory Board Act, which has not been implemented as of yet, also provides for a Board (to be established under the provisions of the said Act) with the power and functions to protect the interests of consumers, to ensure uninterrupted and adequate supply of petroleum and natural gas, and to promote competitive markets. However, it remains to be seen what arrangements will be made so that the powers and functions of the Board do not conflict with that of the CCI or the MRTP Commission, as the case may be. 8.2 To what criteria does the regulator have regard in determining whether conduct is anticompetitive? Under the MRTP Act, a Restrictive Trade Practice means a trade practice that has, or may have, the effect of preventing, distorting or restricting competition in any manner. The MRTP Act also stipulates certain activities that are deemed to be prejudicial to the public interest and are therefore deemed anticompetitive practices. Under the Competition Act, any agreement having or likely to have an appreciable adverse effect on competition will be an anti-competitive agreement. The Competition Act stipulates that the CCI, while determining whether an agreement has an appreciable adverse effect on competition shall have due regard to the creation of barriers to new entrants, driving existing competitors out of the market, foreclosure of competition by hindering and other factors. The Competition Act also provides that agreements entered into between enterprises or association of enterprises or persons or association of persons which directly or indirectly determine purchase or sale prices; limit or control production, supply, markets or technical development, investment or provision of services; directly or indirectly results in bid rigging or collusive bidding; shares the market or source of production by way of allocation of geographical area of markets

or the type of goods or services or the number of customers in the market are presumed to have an adverse effect on competition and are considered to be 'per-se' illegal. No criteria has been stipulated under the Regulatory Board Act and there are no precedents on the subject as the Regulatory Board Act has not yet been implemented. 8.3 What power or authority does the regulator have to preclude or take action in relation to anti-competitive practices? The MRTP Commission, if it concludes that any practice is restrictive or uncompetitive in nature, may direct that the practice shall be discontinued or shall not be repeated or that the agreement shall be void in respect of such restrictive trade practice or shall be modified to exclude the restrictive trade practice. The CCI may order that the anti-competitive agreement or abuse of dominant position be discontinued, suggest amendments to agreements, impose penalty or grant compensation to the aggrieved party etc. The Board to be constituted under the Regulatory Board Act is to have all the powers of a civil court and can pass orders as it may deem fit. 8.4 Does the regulator (or any other Government authority) have the power to approve/disapprove mergers or other changes in control over businesses in the natural gas sector, or proposed acquisitions of development assets, transportation or associated infrastructure or distribution assets? If so, what criteria and procedures are applied? How long does it typically take to obtain a decision approving or disapproving the transaction? The provisions of The Companies Act, 1956 (Companies Act), presently govern mergers and amalgamations. Under the Companies Act, the scheme of merger/amalgamation requires the approval of the shareholders and creditors, if any, and requires sanction from the High Court. No time frame has been stipulated. In cases of listed companies, provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Code) also apply. Once the Competition Act is enforced fully, the provisions under the Competition Act governing mergers/amalgamations and takeovers will also apply.

9.1 Are there any special requirements or limitations on acquisitions of interests in the natural gas sector (whether development, transportation or associated infrastructure, distribution or other) by foreign companies? As per the Foreign Direct investment Policy, Foreign Direct Investment (FDI) is available up to 100% under automatic route (i.e. where no prior Government approval is required for FDI) for exploration in both small and medium-sized fields, for laying of Natural Gas/LNG pipelines, for trading and marketing of natural gas and investment financing in the natural gas sector. Marketing / retail of petroleum products and natural gas requires divestment of 26% in favour of the Indian partner / public within 5 years. 9.2 To what extent is regulatory policy in respect of the natural gas sector influenced or affected by international treaties or other multinational arrangements? To our knowledge, there are no international treaties or other multinational arrangements at present that may influence the regulatory policy for natural gas. However, efforts are being made for the importation of natural gas by pipelines from Iran and Turkmenistan through Pakistan and from Myanmar through

Bangladesh. The treaties and multinational arrangements regarding such import by pipelines may influence the regulatory policy regarding natural gas 10.1 Provide a brief overview of compulsory dispute resolution procedures (statutory or otherwise) applying to the natural gas sector (if any), including procedures applying in the context of disputes between the applicable Government authority/regulator and: participants in relation to natural gas development; transportation pipeline and associated infrastructure owners or users in relation to the transportation, processing or storage of natural gas; and distribution network owners or users in relation to the distribution/transmission of natural gas. The PNG Rules, 1959 provides for compulsory dispute resolution by way of arbitration. As per the said Rules, any dispute including disputes regarding any right claimed under the licence or the lease, or dispute regarding fees, royalty or rents payable or any breach of terms and conditions are to be settled by way of arbitration in accordance with the Arbitration and Conciliation Act, 1996 (Arbitration Act). The model production sharing contract under NELP also provides for resolution of disputes by way of arbitration. 10.2 Is the country a signatory to, and has it duly ratified into domestic legislation: the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and/or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID)? India is a signatory to the New York convention of 1958 on Recognition and Enforcement of Foreign Arbitral Awards and has ratified the same in the Arbitration Act. 10.3 Is there any special difficulty (whether as a matter of law or practice) in litigating, or seeking to enforce judgments or awards, against Government authorities or State organs (including any immunity)? No immunity has been provided to the Government under law. Judgments can be obtained against the Government and arbitral awards may be enforced against the Government. However, obtaining decrees and enforcement of awards may be time consuming. As per the Arbitration Act, enforcement of an award may be refused on grounds such as failure to comply with the procedure and terms of the arbitration agreement or where the agreement itself is proved to be null and void, or where the enforcement of award would be contrary to the public policy of India, etc. 10.4 Have there been instances in the natural gas sector when foreign corporations have successfully obtained judgments or awards against Government authorities or State organs pursuant to litigation before domestic courts? Indian courts are generally not biased against foreign corporations and there have been many instances where foreign corporations have from time to time obtained judgments or awards against the Government or State-run enterprises. Indian courts have also upheld quite a few of the awards given by tribunals.