| Reference Date | Version | October 16, 2024 | 1.0 |
| Keywords | PNGRB, captive pipelines, authorization, dedicated pipeline, common carrier, contract carrier |
| Legislation(s)/Policies |
(i) Petroleum and Natural Gas Regulatory Board Act, 2006 (ii) Guidelines for Laying Petroleum Products Pipelines (iii) Petroleum Pipelines (Acquisition of Right of User in Land) Act, 1962 (iv) Petroleum and Natural Gas Regulatory Board (Authorizing Entities to Lay, Build, Operate or Expand Petroleum and Petroleum Products Pipelines) Regulations, 2010 (v) Petroleum and Natural Gas Regulatory Board (Guiding Principles for Declaring or Authorising Petroleum and Petrol Products Pipelines as Common Carrier or Contract Carrier) Regulations, 2012 |
| Jurisdiction | India |
Introduction
The Petroleum and Natural Gas Regulatory Board Act, 2006 (‘PNGRB Act’) regulates refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas.
Under the PNGRB Act, the Petroleum and Natural Gas Regulatory Board (‘Board’) authorizes entities to lay, build, operate or expand common carrier and contract carrier pipelines.
The Board also regulates access to common carrier or contract carrier pipelines to ensure fair trade and competition amongst entities.
While the PNGRB Act remains silent regarding pipelines developed for self-use, the Board has repeatedly attempted to exercise jurisdiction over captive pipelines.
This article analyses the cases of IMC Limited v. Union of India and Indian Oil Corporation Limited v. Petroleum and Natural Gas Regulatory Board.
Background
IMC Limited (‘Petitioner’) and Indian Oil Corporation Limited (‘IOCL’) sought authorization from the Board to lay pipelines under the PNGRB framework.
The Petitioner was issued authorization on December 18, 2015 for laying a pipeline from Ennore Port to Manali Industrial Area.
The Petitioner later alleged that IOCL began laying multiple petroleum product pipelines without obtaining authorization from the Board.
The Board directed IOCL to stop laying the pipelines through a communication dated December 13, 2023.
IOCL challenged the communication stating that pipelines laid exclusively for captive use fall outside the jurisdiction of the Board.
The Court examined whether the Board had the authority to regulate pipelines laid by entities exclusively for transporting their own petroleum and petroleum products.
Arguments Advanced
Petitioner
- The Petitioner relied upon the 2002 Guidelines for Laying Petroleum Products Pipelines.
- The Petitioner argued that after constitution of the Board, all pipeline approvals required authorization under the PNGRB Act.
- It was contended that the concept of captive pipelines no longer survives after enactment of the PNGRB Act.
- The Petitioner argued that the objective of the PNGRB Act was to promote common carrier and contract carrier systems to enhance competition.
- According to the Petitioner, permitting captive pipelines would defeat the purpose of the legislation.
The Board
- The Board argued that no entity should create pipeline infrastructure solely for its own transport purposes.
- The Board contended that pipelines must maintain additional capacity for non-discriminatory access by other entities.
- It was argued that the PNGRB Act does not recognize the concept of captive pipelines.
- The Board stated that the concept of captive pipelines is gradually being replaced with common carrier and contract carrier pipelines.
IOCL
- IOCL argued that the PNGRB Act does not prohibit laying pipelines exclusively for transporting its own goods.
- The company submitted that common carrier and contract carrier pipelines are intended for use by more than one entity.
- IOCL contended that pipelines laid for self-use fall outside the scope of Board regulation.
- It was also argued that the Board already possesses powers under Section 20 of the PNGRB Act to later convert pipelines into common carriers if necessary.
Union of India
- The Union submitted that the PNGRB Act governs only pipelines impacting consumers.
- Pipelines used solely for transporting an entity’s own products do not impact consumers directly.
- The Union argued that the Board’s authorization powers are limited only to common carrier and contract carrier pipelines.
- The Union further referred to Regulation 19 which permits laying dedicated pipelines even against the advice of the Board.
Judgement
The Court rejected the submissions of the Petitioner and the Board.
The Court observed that if the Legislature intended the Board to regulate all pipelines, it would have expressly stated so in the statute.
The Court further held that regulations cannot have a wider scope than the parent statute itself.
It was noted that the purpose of regulating common carriers and contract carriers was to prevent monopolistic practices and protect consumers.
The Court held that there is no explicit prohibition against captive pipelines anywhere under the PNGRB Act.
The Legislature intentionally limited the Board’s authorization powers only to pipelines used by more than one entity.
The Court also noted that the Board retains the power to later convert captive pipelines into common carriers under Section 20 of the PNGRB Act.
The Court dismissed the petition filed by IMC Limited and set aside the Board’s communication directing IOCL to stop pipeline construction.
View Point
The scope of the Board’s powers regarding captive pipelines has remained a subject of debate since enactment of the PNGRB Act.
A careful reading of the statute indicates that the language of the PNGRB Act does not extend to grant of authorization in respect of captive pipelines.
The issue is deeply connected with business interests and competitive advantages in the petroleum and energy sector.
Different stakeholders naturally adopt different interpretations depending on whether captive pipelines benefit or affect their commercial interests.
Concerns regarding monopolistic or anti-competitive conduct are genuine issues, but such matters primarily fall within the jurisdiction of the Competition Commission rather than the PNGRB.
Legal Support in the Energy & Sustainability Sector
Rachit Singh (Mr) and Ashwini Panwar (Mr)
Associate at Alaya Legal
