THE NAGALAND PETROLEUM AND NATURAL GAS REGULATIONS, 2012

AS APPROVED BY THE CABINET SUB-COMMITTEE ON PETROLEUM AND NATURAL GAS ON 12.09.2012 AS APPROVED BY THE CABINET ON 13.09.2012 AS PASSED BY THE NAGALAND LEGISLATIVE ASSEMBLY ON 22.09.2012

WHEREAS the Nagaland Legislative Assembly, in exercise of its powers under article 371-A (1) (a) of the Constitution of India, had unanimously passed a Resolution on the 26 th July, 2010 rendering inter alia all Acts of Parliament governing petroleum and natural gas inapplicable to the State of Nagaland: WHEREAS the Union of India, while replying in Lok Sabha to a question raised on the issue on the 10th March, 2011, declared that the State of Nagaland has the power to frame rules for governing matters relating to petroleum and natural gas within the territory of Nagaland: NOW THEREFORE, in continuation of the legislative affirmation as contained in the Resolution dated the 26 th July, 2010 and in exercise of its sovereign Constitutional powers conferred upon it by the special provisions in article 371-A (1) (a) of the Constitution of India, the Nagaland Legislative Assembly hereby resolves to re-state the customary practices of Nagas in regard to ownership of land and its resources particularly in relation t o petroleum and natural gas within the territory of Nagaland by enacting the following Regulations:

Short title, extent and commencement:

1. (1) These Regulations shall be called the Nagaland Petroleum and Natural Gas Regulations, 2012. (2) These shall extend to the whole of Nagaland. (3) These shall come into force with immediate effect and shall be published in the Official Gazette of the State.

Definitions & Interpretation:

2. (1) The word company would mean all business organizations which are legally authorized to operate within the territory of India; (2) Other words used in these Regulations have the same legal connotation as assigned to them in any other law; and (3) In the case of any ambiguity, the interpretation of the State Government shall be final.

Restatement of effects of Assembly Resolution dated 26.7.2010

3. With the adoption of the Resolution of the Nagaland Legislative Assembly on the 26th July, 2010 under article 371-A (1) (a) of the Constitution of India, (1) No Act of Parliament governing Petroleum and Natural Gas shall be applicable to the State of Nagaland and all such Acts shall be deemed to have become inapplicable to the State from the date of enactment of article 371 A (1) (a) of the Constitution of India regardless of previous acts of commissions and omissions; (2) No Act or Rule or any other instrument of the Government of Nagaland which is in conflict with the customary law position as enshrined in article 371-A (1) (a) of the Constitution of India in regard to land and its ownership in relation to petroleum and natural gas within the territory of Nagaland shall be deemed to have become void since the date of enactment of such Act or Rule or any other instrument notwithstanding their presence in the statute book and regardless of previous acts of commissions and omissions; and (3) Only these Regulations framed by the Nagaland Legislative Assembly in exercise of its extraordinary legislative powers under article 371 A (1) (a) of the Constitution of India and any other Rules that may be framed by the Government of Nagaland in accordance with the provisions of these Regulations, shall apply to matters relating to petroleum and natural gas within the territory of Nagaland.

Owners of Petroleum and Natural Gas:

4. (1) Whoever owns the land beneath which petroleum and natural gas resources lie, shall be the owners of such petroleum and natural gas resources, in whatever form these may lie underneath their land; and (2) Owners of such land and resources may be, (i) Individual land owners who own oil or gas wells and/or lands in a zone; (ii) Village Bodies that own wells and/or lands in a zone; and (iii) The State Government that own wells and/or lands in a zone. (3)An individual owner of oil or gas well and/or lands in a zone shall be certified to be so, by the village council concerned.

Inalienability of land:
5. No owner of land or oil or gas well in Nagaland, whether an individual or a village body or the State Government, shall alienate land or such well in favour of a non-Naga or a company but may give consent to a non-Naga or a company to access land or oil or gas well for pre-production, production and post-production operations in a zone, which shall revert to the owner at the end of operations.

Petroleum and Gas zones

6. (1) The State Government shall earmark the boundaries of oil and gas bearing areas in the State into petroleum and natural gas zones, as far as possible District-wise, classify them into preproduction, production and post-production zones and name them appropriately as per procedure to be specified in Rules. (2)A list of such petroleum and natural gas zones shall be published in the Official Gazette of the State. (3)The State Government shall have powers to redraw the boundaries of zones, as and when it is found necessary, so that each zone is exclusively for one kind of operations.

(4)A production zone shall not mean only oil or gas wells but shall include other adjacent and en route lands essentially required for production operations.

Classification of Operations:
7. All operations relating to petroleum or natural gas or both in every zone shall be categorized into the following: (i) Pre-production operations which mean and include all operations like exploration, surveys, prospecting, trial production etc., prior to the extraction of the first quantity of oil or natural gas, as the case may be, from the well for commercial purposes; Production operations which mean and include extraction of oil or natural gas, as the case may be, from the well for commercial purposes; and Post-production operations which mean and include commencement of transporting of the oil or gas extracted from the well for purposes of converting/processing oil/gas within Nagaland into marketable products and by-products.

(ii) (iii)

Selection of Companies:
8. (1)The State Government shall, as soon as may be after the notification of the petroleum and natural gas zones, commence the process of awarding the zones to suitable companies. (2) The detailed criteria and procedure for award of the zones to companies shall be as specified in the Rules. (3)A zone shall be awarded to a company on as is where is basis.

Award of zone by Permits:

9. (1) Award of a zone for any category of operation to a company shall be by a permit issued by the State Government which shall be valid for an initial period of ten years from the date of issue of the permit, which may be renewed every ten years.

(2) Any such permit issued to a company in respect of a zone shall state whether the permit is for pre-production operations or for production operations or for post-production operations and separate permits shall be required for each of these three operations. (3)A permit which ceased to operate under these Rules may be freshly issued to the same company after payment of necessary fresh permit fees. (4)Renewal of a permit to a company shall be generally allowed if the renewal fees are paid by the company. (5) Only a company which has the permit for pre-production in a zone under these Regulations shall be entitled to a permit for production and post-production operations in that zone, unless the company itself is not interested in pursuing further operations in that zone. (6) Where a zone is ready for production operations and no pre-production operations are carried out under these Regulations, only a company which has the permit for production under these Regulations in that zone shall be entitled to a permit for postproduction operations, unless the company itself is not interested in pursuing further operations in that zone.

Conditions relating to permits :

10. (1) A company shall commence work in the respective zone within one year of issue of the permit, failing which the permit shall automatically cease to operate and the permit thereof shall not be awarded to the errant company but to a new company. (2) A company shall not cool off work after commencement of work in a zone for a continuous period of six months, and if such a cool off happens, the permit shall automatically cease to operate which shall not be awarded to the errant company but to a new company. (3) The permit of a company shall be permanently invalidated if the company is found to have violated any provision of these Regulations or the Rules framed by the State Government, in which case the licence shall not be issued to the errant company again.

(4) No permit issued to a company shall be transferred to another company either by the company or by the State Government. (5) Works in a zone may be sub-contracted by a permit-holding company to another company provided that the value of works so sub-contracted does not exceed twenty five per cent of the net worth of the permit-holding company.

Explanation: Sub-clauses (1) and 2) shall not operate in case the delay in commencing work or the cool-off is caused by force majeure reasons. Permit fees:
11. (1) A company shall deposit with the State Government a fee as specified in the Rules for each of the following, which is nonrefundable: (1) For a new permit for pre-production operations or production operations or post-production operations in a zone; (2) For fresh issue of a permit which ceased to operate under these Rules; and (3) For renewal of a valid permit every Ten years. (2) Separate fees shall be charged for separate zones even if the company is the same for more than one zone.

General Advisory on Companies:

12. Besides the criteria to be specified in the Rules, the following general considerations shall be carefully kept in view by the State Government while issuing a permit to a company: (a) The overall technical expertise, the investment potential, the broad experience in exploration, prospecting and production of petroleum and natural gas of the company; The Plan of the company in regard to corporate social responsibility especially for providing a sustainable income generating ambience to the people of the area

(b)

(c) (d) (e) (f) (g) (h) (i)

concerned and for promoting health, educational and infrastructural development; The utmost care the company takes in environment protection issues; The trust the company enjoys in the eyes especially of the land owners; The companys ability to set up refineries, other ancillary industries and in utilizing gas; The Company should have trust in Nagas, their culture, customs and way of life; The overall profile of the Company and antecedents of the company in the State; The companies other oil and gas related activities in States with which Nagaland has border disputes; Such other relevant and related considerations affecting the larger interests of the public inhabiting the zone and the people of Nagaland, in general.

Land Access operations:

Fees

for

pre-production

and

post-production

13. (1) Besides the permit fees paid to the State Government, for commencing and continuing pre-production operations or postproduction operations in respect of petroleum or natural gas in a zone, a company concerned shall pay to the State Government for further disbursement to the land owners, a land access fee for using their land at such uniform rates as are currently applicable in the State for such land, which shall be restated by the State Government in the Rules besides an additional compensation, to be determined by the State Government to damage caused to crops, property etc.,. (2)The company shall pay the land access fee annually, one month in advance of the beginning of operations in the zone initially, and thereafter one month in advance of every subsequent year, to the land owners to be calculated from the date of commencement of the pre-production or post-production operations and deposit the same with the State Government for further disbursement. (3)No permit for pre-production or post-production operations shall be issued to a company and no renewal of permit or fresh issue of permit shall be done, without an agreement providing for the

payment of the land access fees annually in advance to the land owners, being signed between the Government on behalf of the land owners, and the company, with the Tribal Hoho(s) and village councils concerned as witnesses. (4) Immediately upon the signing of the Agreement in clause (3) above, another Agreement shall be signed between the land owners and the company for handing over the land for access to the company for the requisite period, with the Village Council concerned as witness. (5) Delay in payment of land access fees to the land owners shall attract a monthly interest to be specified in the Rules. pre-production or post-production operations are certified to have been concluded by the State Government and from the date of such reversion, the company concerned is not liable to pay land access fee to the land owners.

Explanation: The land shall revert back to the owners once the

Revenue Share in production of petroleum and natural gas:

14. (1) Besides the permit fees paid to the State Government, for commencing and continuing production of petroleum or natural gas in a zone, the company concerned shall additionally pay to the State Government not less than sixteen per cent. of total value of production of petroleum or not less than twelve per cent. of value of production of natural gas as ascertainable at the mouth of the oil or gas well, as the case may be, which shall be distributed in the following manner: (a) Not less than two per cent both in the case of petroleum and natural gas collectively to the individual land owners who own oil or gas wells in a zone; (b) Not less than four per cent in the case of petroleum or not less than two per cent in the case of natural gas collectively to other individual land owners who do not own oil or gas wells in a zone; (c) Not less than two per cent in the case of petroleum and not less than two per cent in the case of natural gas to the District Development Board of that zone;

(d) Not less than eight per cent in the case of petroleum and not less than six per cent in the case of natural gas to the State Government. (2) The above shares,(a) meant for the oil or gas well owners shall be distributed equitably amongst them based upon the number of wells, the quantity of production and other rational considerations; (b) meant for other individual land owners shall be distributed equitably based upon the extent of ownership of land by each land owner in that zone; and (c) meant for the DPDB concerned shall be distributed in terms of assistance for a developmental package with the Tribal Hoho (s) as pivotal agencies. (3) The value of production shall be pitched to an international petroleum and natural gas price index to be specified in Rules. (4)The share in the value of production to the parties as aforesaid shall be calculated by the company at the end of each month from the date of commencement of production of petroleum and natural gas and payments actually made to the State Government by the Company within forty five days for further disbursement. (5) No permit for production operations shall be issued to a company without an agreement to the aforesaid revenue sharing arrangement being signed between State Government on behalf of the landowners and the company with the Tribal Hoho(s) and the village councils concerned as witnesses. (6) The company shall not be liable to pay any land access fee to land owners in the case of production operations except the above mentioned revenue shares. (7) Delay in payment of share in revenue as aforesaid shall attract a monthly interest to be specified in the Rules. that quantities of oil or gas that are fit for commercial use.

Explanation: The above revenue shares are applicable only to

Refinery, Bottling and Ancillary Industries:

15. No part of crude oil or natural gas extracted from Nagaland shall be transported out of the State without being refined or bottled or converted into marketable products and by-products within Nagaland as part of post-production operations subject to the production limits required for setting of such refinery, bottling and ancillary industries is reached by the companies.

Naga to be Brand Name of products and by-products:

16. The company operating under these Rules shall name all petroleum and natural gas products and by-products by prefixing to the name of every such product or by-product the Brand Name NAGA, failing which it shall be deemed as violation of these Regulations by the Company.

Employment:
17. (1) Every company to which a permit is issued in respect of a petroleum or natural gas zone, shall compulsorily reserve not less than 50% jobs of unskilled category and 10% of non-technical white collar jobs to Naga youths from the respective oil/gas bearing Districts in all (i) pre-production (ii) production and (iii) postproduction operations. (2)10% of all non-technical white collar jobs and 10% of technical jobs shall be reserved for the Naga Youths from all over the State. (3)Failure to implement this provision shall be deemed as wilful contravention of these Regulations entailing invalidation of permit of the company.

Use of Revenues:
18. (1) Subject to the provisions herein the revenues accruing to the DPDBs and State Government under these Regulations shall be credited to respective Special Corpus Funds to be exclusively applied to overall infrastructure development of the State and the District respectively;

(2)The quarterly reports of the Deputy Commissioner and the Annual Reports of the High Powered Committee, referred to in Regulation No. 23, should precisely inform about the quantum of revenues received under these regulations and the manner in which visibly infrastructure has been improved in the State and District levels.

Naga Petroleum Academy:

19. The State Government shall establish a Training Institution by name Naga Petroleum Academy to train Naga youths in unskilled and skilled jobs, technical and non-technical jobs and other related work in petroleum and natural gas industry.

Single Window:
20. (1) The State Government shall nominate an Agency/Department, whether existing or a newly created one, as the Nodal Agency/Department to carry out the purposes of these Regulations and Rules to be framed by the State Government. (2) The Agency/Department so nominated shall function as Single Window for the companies to correspond with in all matters under these Regulations and the Rules to be framed. (3) It shall be the responsibility of the Nodal Department/Agency to obtain all clearances and carry out all necessary documentary work on behalf of the companies so that the companies are not caught in delays and uncertainties and feel at ease in the State. (3)A permit granted to a company shall be invalidated or may cease to operate only in the contingencies expressly specified in these Regulations and not on account of deficiency on any ground including the ground of not having any clearance and it shall be the endeavour of the Nodal Department to assist the Company in remedying any such deficiency if detected after the issue of the permit.

Explanation: This concession shall not apply to a company

which contravenes any provision relating to economic

offences, tax violations, money laundering etc., punishable under any law operative in the territory of India. (4)As the operations under these Regulations are conducted within the framework of article 371-A(1)(a) of the Constitution of India, only these Regulations and Rules to be framed by the State Government shall apply in regard to clearances for operations by a company in the State.

Security:
21. (1) Every Company operating under these Regulations on the soil of Nagaland shall be the Special Guest of the Nagas, and it shall be the special responsibility of the people of Nagaland in particular, the individual landowners, the Village Councils, the Tribal Hoho(s), the District Administration and the State Government to protect the lives, liberties and properties of those in the Company and to provide necessary logistics to the operations of the Company. (2) The individual land owners, the village councils, the District Administration, the Tribal Hoho(s) concerned and the State Government shall, before the operation is begun by the company in a zone, sign a covenant to the effect that the lives, liberties and properties of those in the company shall be protected at all costs and shall not be damaged under any provocation. (3) In line with the covenant, the State Government shall ensure adequate security to the equipment, installations, manpower and other resources of the companies operating in the State in the respective zones.

Companies to comply with customary law:

22. (1) Every company, before being issued with a permit for preproduction or production or post-production operations, shall give an undertaking to the State Government that it shall bind itself to the Naga customary practices of the respective tribes. (2)Any such undertaking as referred in clause (1) above shall be deemed part of the Agreements the company is required to sign with the State Government under these Regulations.

Monitoring & Reporting:

23. (1) The implementation of these Regulations shall be continuously monitored by a High Powered Committee headed by the Chief Minister of the State and comprising some Ministers and the Chief Secretary. (2) There shall also be a Committee at the District level of the zone(s) concerned with the Deputy Commissioner as the Head and the President(s) of the Tribal Hoho(s) as members with representatives drawn from the private land owners and village councils. (3)The District level Committee shall present quarterly reports to the High Powered Committee which in turn cause Annual Reports made and laid before the Nagaland Legislative Assembly.

Power to make Rules:

24. (1) The Nagaland Legislative Assembly hereby delegates its legislative powers available to it under article 371-A (1)(a) of the Constitution of India in relation to land and its resources particularly in relation to petroleum and natural gas, to the Government of Nagaland to make appropriate Rules within the scheme and scope of these Regulations in order to effectively carry out the purposes of these Regulations which shall make provisions, (a) for matters required Regulations; and to be specified under these

(b) to remedy all insufficiencies and inadequacies in these Regulations that may arise during implementation. (2)Rules so made by the Government of Nagaland shall take effect from the dates specified therein, but shall be laid before the Nagaland Legislative Assembly, as soon as may be after these are made. (3)The Nagaland Legislative Assembly has powers to annul or modify any of these Rules. (4) The Government of Nagaland shall consult the Tribal Hoho (s) while framing rules under this provision.

___

__________________________________________________________________ Printed for the Department of Geology & Mining, Government of Nagaland by the Member-Secretary, Cabinet Sub-Committee on Petroleum and Natural Gas (APC Cell) September 2012