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Regulatory Agencies In Oil And Gas Industry

This exploratory research paper builds on the literature on regulation from Public Policy, Economic Analysis of Law, and Law by taking a multidisciplinary approach and examining the establishment of independent regulatory agencies as the primary Competent Authorities in the regulation of the oil and gas industry, particularly in the upstream. The study also examines alternative models in which the National Oil Company and the Ministries of Oil and Energy are responsible for upstream control.

This study looks at the flaws in the three models and instances of independent regulatory bodies from other countries. The jurisdictions analysed in this article were not picked at random, and they highlight several pertinent difficulties with the creation of independent regulatory bodies by looking at important jurisdictions, agencies were established as the Competent Authorities to oversee the oil and gas sector, and the other two institutional options were abandoned. The article compares a few of the difficulties associated with the implementation of independent regulatory agencies.

Regulatory Agencies

When legislatures or parliaments provide public entities authority to govern a particular social or economic sector, a phenomena known as "agencification," independent regulatory agencies are founded as an efficient method of regulation. This phenomena is related to the development of the "regulatory state," in which "independent entities" are responsible for regulating social and economic activity.

be considered the sole solution to fill the "institutional vacuum" in emerging nations. As the example of Indonesia, which is discussed below, demonstrates, it can be challenging to achieve and/or implement the transition from a model in which the regulation of oil and gas is carried out by the national oil company (NOC) to a model in which the regulation is performed by an independent regulatory. Above all, since there are no ideal answers, the establishment of an independent regulatory agency must carefully weigh the costs and advantages.

As seen by the example of Petronas below, countries like Malaysia in the oil and gas sector indicate that a paradigm controlled by the NOC may function relatively well to Malaysia's favour. The fundamental benefit of independent regulatory bodies is their ability to deliver adequate regulation of a certain business and/or economic sector without influence from politics and independent technical skills.

Regulatory frameworks in the oil and gas industry

To entice investment from oil corporations, the majority of jurisdictions must establish a legislative framework that strikes a balance between the interests of the business and the host countries. A desired fiscal system, appealing resource base (geology), and a well-designed legislative framework are all characteristics of a jurisdiction that attracts potential investors.

The general norm is that for investors (usually IOCs), geology comes first, then the financial system, and finally the legal system. Oil and gas jurisdictions must establish a legal framework, which comprises rules, a model host government, a hydrocarbons (oil and gas) legislation, and tax laws or measures tailored to the oil and gas business.

Adopting this legislative framework necessitates the creation of a "Competent Authority" with public powers granted by legislatures to control the market and carry out governmental directives. The National Oil Company, the Ministry of Oil or Energy, or another independent regulatory body can serve as this Competent Authority.

This is where the controversy surrounding independent regulatory agencies has to be understood, since the use of independent regulatory agencies as the primary Competent Authority in the oil and gas industry is just one of three alternative models. In light of this framework, there are three primary regulatory frameworks for the oil and gas sector that are prevalent in most oil and gas jurisdictions:

There are three types of regulatory structures:

Ministry-dominated (the Ministry of Petroleum and Energy is in charge of the sector's regulation); NOC-dominated (the NOC regulates the sector, either formally or informally, and there isn't a clear distinction between commercial and regulatory functions); and Independent Regulatory Agency-dominated (in this model an independent regulatory agency is responsible for the regulation of the oil and gas sector).

In India: Perspective

Role of the union and states:

The Indian Constitution designates the nation as a union of states, and Part XI of the document divides legislative authority between the union and the states. The Union is the only entity with the authority to enact laws governing the control and development of oil fields, mineral oil resources, petroleum, and petroleum-related goods, according to the Constitution.

When it comes to the states, the state governments of each state give licences and leases in relation to the property that belongs to that state with the union government's prior consent. Additionally, since the Union Ministry of Environment, Forest, and Climate Change amended the 2006 Environment Impact Assessment Notification, environmental approvals for oil and gas development must be obtained from the state government concerned.

Ownership:
Article 297 of the Constitution states that oil in its natural condition found in India's territorial seas and continental shelf is vested in the union with regard to ownership of oil and gas rights.

The union government is the sole and exclusive owner of the petroleum underlying the area specified in such a contract, in accordance with the Model Production Sharing Contract (Model PSC) and the Model Revenue Sharing Contract (Model RSC), which serve as the models for agreements concluded with exploration and production contractors.
  • The Petroleum Act of 1934 was passed to codify and reform the laws governing the production, refining, and mixing of petroleum as well as its importation, transportation, and storage.
     
  • The Oilfields (Regulation and Development) Act of 1948 (the Oilfields Act), which governs oilfields and the development of India's mineral oil resources. Indian mining leases shall be given in accordance with the regulations established by this Act.
     
  • The Territorial Waters, Continental Shelf, Exclusive Economic Zone, and Other Maritime Zones Act of 1976 (referred to as the "Maritime Act") lays out rules for the central government's issuance of permits for the exploration and exploitation of the resources of the continental shelf and exclusive economic zone.
     
  • The Petroleum and Natural Gas Regulatory Board Act of 2006:
    This law was passed to create the board (PNGRB). The refining, processing, storage, distribution, marketing, and sale of crude oil, petroleum products, and natural gas are all subject to regulation by the PNGRB.
  • The Mines Act of 1952 and the Oil Mines Regulations of 2017:
    These govern operating conditions in oil mines by establishing safety requirements as well as defining the responsibilities of owners, managers, and agents with regard to oil mines. They also impose penalties for certain offences.
     
  • The Oilfields Act established the Petroleum and Natural Gas Rules 1959 (the PNG Rules), which govern the issuance of petroleum exploration licences (PELs) and petroleum mining leases.

Legislation:

The Oil Sector Development Board (OIBD) was founded by the Oil Industry (Development) Act of 1974 (also known as the "OIDB Act") to provide financial support for the growth of the oil industry and charge an excise tax on crude oil and natural gas. The Ministry of Petroleum and Natural Gas has administrative responsibility over how the OIBD operates (MoPNG).

Policies:
  • Hydrogen Exploration and Licensing Policy (HELP):
    In order to increase domestic oil and gas output, the federal government adopted HELP in 2016. It encourages exploration in sedimentary basins. In order to encourage offshore exploration, HELP included provisions for a uniform licencing regime for both conventional and unconventional hydrocarbons, an open acreage licencing policy (or "OALP") that allows companies to select and submit expressions of interest for blocks throughout the year without having to wait for auctions, and a graded system for lower royalty rates.
     
  • The government created the New Exploration and Licensing Policy (NELP) in 1997 to create a fair playing field for both public and private sector businesses engaged in the exploration and production of hydrocarbons.
     
  • Discovered Small Field Policy 2015 (DSF):
    Through the introduction of particular reforms in this area, the DSF intends to put India's marginal fields-which have not yet been monetised or exploited-into production.

Rules and regulations:
"Offshore Safety Rules" or Petroleum and Natural Gas (Safety in Offshore Operations) Rules of 2008 The Oilfields Act led to the creation of the Offshore Safety Rules, which include guidelines for environmental, health, and safety protection.

Disputes
Oil and Gas Regulatory Commission (PNGRB: The PNGRB Act grants the PNGRB the right to exercise the same jurisdiction, powers, and authority over matters relating to petroleum refining, processing, storage, transportation, and distribution, as well as the quality of service and security of supply to consumers, as well as registration or authorization issued by the PNGRB under Sections 15 or 19 of the act.

The appellate authority to hear appeals against the PNGRB's rulings has been designated as the Appellate Tribunal for Electricity, which was constituted under the Electricity Act, 2003. The Supreme Court of India is hearing the second appeal.

Arbitration: The PNGRB's authority does not apply to arbitration. The appellate authority to hear appeals against the PNGRB's rulings has been designated as the Appellate Tribunal for Electricity, which was constituted under the Electricity Act, 2003. The Supreme Court of India is hearing the second appeal.

Arbitration: The PNGRB's authority does not apply to arbitration. As a result, if the parties' agreement calls for the arbitration of disputes, as is frequently the case with revenue sharing contracts (RSCs), then one of the parties must begin the arbitration process.

Arbitration and mediation by a committee of experts: The Ministry of Petroleum and Natural Gas also announced the appointment of an Expert Committee for Dispute Resolution in 2019 to conduct negotiation and mediation for the resolution of disagreements between the parties over exploration and licencing, as well as other matters according to the 1996 Arbitration and Conciliation Act.

Judicial review: If any action by the union, the states, or a qualified governmental body violates any rights protected by the Constitution, judicial review is a potential remedy.

CONCLUSION
The "Make in India" and "Atmanirbhar" programmes of the present government are primarily to blame for the significant change in India's attitude to the oil and gas industry. Companies and enterprises, both domestic and foreign, must now adjust their strategy to take into account this push for independence.

Significant policy changes include requiring the reserve bank of India to approve investments from nations with whom India has a border. In line with this, businesses submitting expressions of interest or bids to take part in contracts issued by the Indian government would also need to register with the administering authorities.

To guarantee compliance with local content standards, businesses should step up their efforts to form collaborations with local partners and suppliers, both for participation in revenue-sharing contracts and for the deployment of Indian technology/employment of Indian residents. Income tax issues should also take precedence when considering investments in the oil and gas sector given the Cairn actions against the Indian government.

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