CENTRAL UNIVERSITY OF SOUTH BIHAR

GAYA CAMPUS

CLASS ASSESSMENT TEST

Law Relating to
Infrastructural Development
Submitted by

GYANENDRA KUMAR

B.A.LL.B (h)

CUB 1313125012

X th semester

SUBMITTED TO

DR.PRADIP KUMAAR DAS

ASST.PROFESSOR

SCHOOL OF LAW AND GOVERNANCE

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Contents

1. Introduction
2. Laws and Regulations Governing the Sector
3. Functions and Power of the Board
4. Offences and Punishment
5. Conclusion

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Introduction

Petroleum and natural gas are second only to coal in India‘s commercial energy mix,
contributing more than 40 per cent of the country‘s conventional energy supply. The sector
plays a critical role in determining India‘s energy security. Since India does not have
sufficient domestic crude reserves to meet the growing demand for petroleum products, it has
to import 80 per cent of its total crude consumption. Natural gas imports are also expected to
increase in the future. The level of import dependence coupled with the heavy reliance on oil
and gas in India makes governance of this sector crucial for ensuring energy security.
Moreover, since energy supply and access are crucial drivers of economic development, good
governance practices in this sector are all the more important. However, even a cursory
glance at the current scenario shows a number of lacunae which are impeding development of
this sector. A closer look reveals the multiplicity of interconnected issues that would need to
be addressed in detail to improve performance of the oil and gas sector in the country.

India is one of the fastest growing major economies in the world and the third largest
consumer of petroleum products, after US and China1. Although there is an increased focus
on gas and renewables, demand for oil has always been on the rise, and is estimated to grow
at least until 20402. As per the report published by India Brand Equity Foundation (IBEF)3,
India’s energy demand is expected to double to 1,516 million tonnes of oil equivalent (Mtoe)
by 2035 from 723.9 Mtoe in 2016. Moreover, India’s share in global primary energy
consumption is projected to increase by two-folds by 2035.

India’s total oil imports rose 4.24 percent year-onyear to US$ 86.45 billion in 2016-17.
India’s oil consumption grew 8.3 percent year-on-year to 212.7 million tonnes in 2016, as
against the global growth of 1.5 percent, thereby making it the third-largest oil consuming
nation in the world. India is the fourth largest Liquefied Natural Gas (LNG) importer after
Japan, South Korea and China, and accounts for 5.8 percent of the total global trade4. In
2016-17, India consumed 193.745 MMT of petroleum products, while the consumption stood
at 184.674 MMT during 2015-16. In 2017-18, up to September, the figure stood at 96.82
MMT. India has always been an import dependent nation in the Oil and Natural Gas
(“O&NG”) sector. India’s domestic crude oil production of 36.95 million tonnes in 2015- 16
barely met 20 percent of its oil needs. Natural gas output at 32.249 billion cubic meters meets

1‘Cautious optimism has returned across the industry’ (published on December 31, 2017), available on
http://www thehindubusinessline.com/specials/year-in-review-cautiousoptimism-has-returned-across-
the-industry indian-oil-chief/ article10007043.ece (accessed on 9 January 2018).
2 ‘India’s time to capitalize on oil and gas sector’ (published on December 22, 2017), available on

http://www.livemint.com/ Opinion/FjMgDDggOkPZ05qounbRjM/Indias-time-to-capitalize on oil-and-

gas-sector.html (accessed on January 8, 2018).
3 IBEF is a trust established by the Department of Commerce, Ministry of Commerce and Industry,

Government of India. IBEF’s objective is to promote and create international awareness of the Made in
India label in markets overseas and to facilitate dissemination of knowledge of Indian products.
4 India Brand Equity Foundation, The Indian Oil and Gas Sector (published in October, 2017)

https://www.ibef.org/download/ Oil_and_Gas-October-_2017.pdf; also see https://www.ibef.org/

industry/oil-gas-india.aspx(accessed on January 8, 2018).

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less than half of its needs5. As a result of significant dependence on import, Prime Minister
Narendra Modi has set a target to reduce dependence on crude imports by 10% by 2022.

In India, the O&NG industry has huge potential and contributes over 15% to the India’s
GDP. The landscape in the O&NG sector promises to be dynamic with scope for growth of
business entities. This industry has always attracted foreign direct investments, and according
to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum
and natural gas sector attracted FDI worth US$ 6.86 billion between April 2000 and
September 20176. With 3.14 million sq. km of potential reserves lying unexplored until 2016,
India’s potential in the oil and gas sector is immense and there exists vast headroom for new
discoveries7. There has also been an increase in the refining of petroleum products in India.
IBEF’s report suggests that in the current financial year, India had 234.5 MMTPA of refining
capacity, making it the 2nd largest refiner in Asia. The rise in refined petroleum products is
primarily driven by the massive domestic market. Separately, the Government of India of
India’s push towards a gas based economy8 is estimated to present new investments and
opportunities in this area. India’s focus on a gas based economy is in line with the global
commitment made at the Paris meeting on climate change, which aims to reduce India’s
carbon emissions by up to 35% from 2005 levels by 2030 and producing 40% of the power
from non-fossil fuel sources by 2030. These developments present an opportunity for India’s
downstream and midstream oil and gas sectors. It is expected that India’s petrochemical
market will grow at a compound annual growth rate of 10% over the next five years and
reach the $100 billion mark by 2022. The industry can potentially enhance India’s growth
through the development of niche products and promotion of exports9.

The Government of India, under the Constitution of India, 1950 (“Constitution”) has the
power to legislate in respect of O&NG. Legislative powers are conferred on the Government
of India under Entry 53, to List I of Schedule VII of the Constitution10. From an industry
perspective, O&NG industry is divided into three major segments:

5 ‘Year that saw oil, gas production switch to revenue-sharing mode’ (published on December 30, 2017),
available on https:// economictimes.indiatimes.com/industry/energy/oil-gas/year that- saw-oil-gas-
production-switch-to-revenue-sharing-mode/ article show/62306282.cms (accessed on January 8,
2018).
6Fact sheet on Foreign Direct Investment, available on http://
dipp.nic.in/sites/default/files/FDI_FactSheet_June2017_2_0.pdf (accessed on January 8, 2018).
7 ‘India’s time to capitalize on oil and gas sector’ (published on December 22, 2017), available on

http://www.livemint.com/ Opinion/FjMgDDggOkPZ05qounbRjM/Indias-time-to-capitalizeon- oil-and-

gas-sector.html (accessed on January 8, 2018).
8 Press Information Bureau, Government of India, Ministry of Petroleum & Natural Gas, ‘Steps being taken

to make India a Gas based economy’, (published on November 21, 2016), available on
http://pib.nic.in/newsite/PrintRelease.aspx?relid=153957 (accessed on January 9, 2018).
9 India’s time to capitalize on oil and gas sector’ (published on December 22, 2017), available on

http://www.livemint.com/Opinion/ FjMgDDggOkPZ05qounbRjM/Indias-time-to-capitalize-on-oiland-
gas-sector.html (accessed on January 8, 2018).
10 Regulation and development of oil fields and mineral oil resources; petroleum and petroleum products;

other liquids and substances declared by Parliament by law to be dangerously inflammable.

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  Upstream: Comprises of activities pertaining to exploration, recovery and production
of O&NG. In industry parlance, it is simply called Exploration and Production
(“E&P”).
 Midstream: Processes, stores, markets and transports commodities such as crude oil,
natural gas, natural gas liquids (liquefied natural gas such as ethane, propane and
butane) and sulphur.
 Downstream: Refers to the refining of crude oil and the selling and distribution of
natural gas and products derived from crude oil.

Laws and Regulations Governing the Sector

Accounting for nearly 40% of the country‘s energy demand, the petroleum and natural gas
sector forms a major source of energy in India. The share of oil and gas in India‘s energy mix
is projected to increase in the near to medium term. Further, for both these sources, the
dependence on imports is also projected to rise. Even though the two products are used
differently, their exploration processes are similar and this has often led to them to being
addressed in the same category, particularly in legislations. List of major Acts governing the
oil and gas sector in India:-

1. The Petroleum Act, 1934

2. The Oilfields (Regulation and Development) Act, 1948

3. The Petroleum and Minerals Pipeline Act, 1962

4. The Oil Industry (Development) Act, 1974

5. Petroleum and Natural Gas Regulatory Board Act, 2006

The Petroleum Act was passed in 1934 to address operational issues covering the entire
value chain of oil production. The objective of the Act was to consolidate laws relating to the
import, transport, storage, production, refining and blending of petroleum with powers for
regulating these aspects being vested primarily with the Central government.

Following the Petroleum Act, the next major legislation was the Oilfields (Regulation and
Development) Act of 1948. Under this Act, the central government was granted the power to
make rules for regulating the authorization of mining leases (for offshore blocks). Further, the
Act also empowers the central government to determine rates of royalty payable by the holder
of the mining lease for onshore as well as the offshore blocks11.

The authority of the central government over the development of the sector is further re-
affirmed by the powers awarded to it under the Petroleum and Natural Gas Rules 1959

11In addition to royalty, the holder of a mining lease for onshore blocks has to pay surface rent to the
concerned state government. The rates of surface rents are determined by the central government.

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(last amended in 2009). Under the said Rules, even though the respective states own the
blocks found within their territory and are therefore, responsible for awarding the licenses for
onshore blocks, they can, however, do so only with prior approval from the central
government. Therefore, taking into consideration the Oilfields Act of 1948 and the Petroleum
and Natural Gas Rules of 1959, it is clear that the powers enjoyed by the state governments
are restricted by the central government in so far as granting of onshore mining licenses and
deciding upon the royalty and surface rent rates are concerned.12

With regard to acquisition of user rights on a land where petroleum and/or mineral pipelines
have to be laid, the Petroleum and Minerals Pipeline Act was passed in 1962. This Act has
provisions relating to the acquisition and utilization of land for laying pipelines. The central
government has been given the authority to acquire the land. Once the land has been
acquired, the central government has the option of either keeping the acquired land or
transferring it to either the state government or the corporation13 for which the land has been
acquired. The Act also provides for compensation in case of any damage, loss or injury is
sustained by any person interested in the land under which the pipeline is proposed to be, or
is being, or has been laid. Further, the liability of paying the compensation lies with the
concerned authority, i.e., the central or state governments or corporation.

In addition to the aforementioned legislations, the Oil Industry (Development) Act was
passed in 1974 under which the Oil Industry Development Board (OIDB) was created at a
time when the need to promote self-reliance in the oil and gas sector was realized. The
mandate of the Board is to facilitate development of the sector. The Board is responsible for
collecting the oil industry development cess on the blocks that have been awarded to
upstream oil companies on a nomination basis. It also extends financial assistance to
companies in the sector in the form of loans.

The most recent legislation in the sector was passed in 2006 when the Petroleum and
Natural Gas Regulatory Board (PNGRB) Act was passed under which the PNGRB was
established as a statutory regulatory body for the downstream petroleum.

An Act to provide for the establishment of Petroleum and Natural Gas Regulatory 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.

12 (Noronha and Srivastava, 2012).

13 Corporation means any body corporate established under any Central, Provincial or State Act, and
includes:
(i) a company formed and registered under the Companies Act, 1956 (1 of 1956); and
(ii) a company formed and registered under any law relating to companies formerly in force in any part of
India.

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As per the PNGRB Act, the objective of the establishment of PNGRB is 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.

FUNCTIONS AND POWERS OF THE BOARD ( Under Section 11)14

Functions of the Board :-

The Board shall-

(a) protect the interest of consumers by fostering fair trade and competition amongst the
entities;

(b) register entities to-

(i) market notified petroleum and petroleum products and, subject to the contractual
obligations of the Central Government, natural gas;(ii) establish and operate liquefied natural
gas terminals;

(iii) establish storage facilities for petroleum, petroleum products or natural gas exceeding
such capacity as may be specified by regulations;

(c) authorise entities to-

(i) lay, build, operate or expand a common carrier or contract carrier;

(ii) lay, build, operate or expand city or local natural gas distribution network;

(d) declare pipelines as common carrier or contract carrier;

(e) regulate, by regulations,-

(i) access to common carrier or contract carrier so as to ensure fair trade and competition
amongst entities and for that purpose specify pipeline access code;

(ii) transportation rates for common carrier or contract carrier;

14THE PETROLEUM AND NATURAL GAS REGULATORY BOARD ACT, 2006 NO. 19 OF 2006
[31st March, 2006]

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(iii) access to city or local natural gas distribution network so as to ensure fair trade and
competition amongst entities as per pipeline access code;

(f) in respect of notified petroleum, petroleum products and natural gas-

(i) ensure adequate availability;

(ii) ensure display of information about the maximum retail prices fixed by the entity for
consumers at retail outlets;

(iii) monitor prices and take corrective measures to prevent restrictive trade practice by the
entities;

(iv) secure equitable distribution for petroleum and petroleum products;

(v) provide, by regulations, and enforce, retail service obligations for retail outlets and
marketing service obligations for entities;

(vi)monitor transportation rates and take corrective action to prevent restrictive trade practice
by the entities;

(g) levy fees and other charges as determined by regulations;

(h) maintain a data bank of information on activities relating to petroleum, petroleum

products and natural gas;

(i) lay down, by regulations, the technical standards and specifications including safety
standards in activities relating to petroleum, petroleum products and natural gas, including the
construction and operation of pipeline and infrastructure projects related to downstream
petroleum and natural gas sector;

(j) perform such other functions as may be entrusted to it by the Central Government to carry
out the provisions of this Act.

In addition to these, the Ministry of Petroleum and Natural Gas (MoPNG) is actively
considering policies on exploration and production of unconventional hydrocarbons,
especially shale gas and coal bed methane (CBM). The draft policy on shale gas has been
formulated and shale gas blocks may begin to be awarded in the next few years. However,
there are significant environmental concerns regarding shale gas explorations which would
need to be addressed. The country‘s CBM reserves are estimated to be quite large. However,
CBM production remains very low and there are inter-ministerial conflicts between the
MoPNG and the Ministry of Coal (MoC) over governance of this particular resource (TERI,
2013).

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OFFENCES AND PUNISHMENT

Punishment for contravention of directions of the Board (Section 44)

If a person contravenes the directions of the Board, such person shall be punishable with fine
which may extend to twenty-five crore rupees and in case of continuing contravention with
additional fine which may extend to ten lakh rupees for every day during which the
contravention continues.

Penalty for wilful failure to comply with orders of Appellate Tribunal (Section 45)

If any person wilfully fails to comply with the order of the Appellate Tribunal, he shall be
punishable with fine which may extend to one crore rupees and in case of a second or
subsequent offence with fine which may extend to two crore rupees and in the case of
continuing contravention with additional fine which may extend to twenty lakh rupees for
every day during which such default continues.

Punishment for unauthorized activities (Section 46)

If any person, being an entity, markets any notified petroleum, petroleum products or natural
gas without a valid registration, or authorisation such person shall be punishable with
imprisonment which may extend to three years or with fine which may extend to twenty-five
crore rupees or with both, and in case of continuing contravention with additional fine which
may extend to ten lakh rupees for every day during which the contravention continues.

Punishment for establishing or operating a liquefied natural gas terminal without

registration (Section 47)

If a person establishes or operates a liquefied natural gas terminal without registration as

required under section 15, such person shall be liable for punishment with an imprisonment
for a term which may extend to three years or penalty of twenty-five crore rupees or with
both, and in case of continuing contravention with additional fine which may extend to ten
lakh rupees for every day during which the contravention continues.

Punishment for laying, building, operating or expanding a common carrier or contract

carrier without authorisation (Section 48)

If a person lays, builds, operates or expands a common carrier or contract carrier or a city or
local natural gas distribution network without obtaining authorisation required under section
19, such person shall be liable for punishment with an imprisonment for a term which may
extend to three years or penalty of twenty-five crore rupees or with both, and in case of
continuing contravention with additional fine which may extend to ten lakh rupees for every
day during which the contravention continues.

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Punishment for wilful damages to common carrier or contract carrier (Section 49)

Every person who wilfully removes, destroys or damages any pipeline or city or local natural
gas distribution network or other work of the common carrier or contract carrier for supplying
petroleum, petroleum products or natural gas shall for each such offence be punishable with
imprisonment which may extend to three years or with fine which may extend to twenty-five
crore rupees or with both, and, in case of continuing contravention with additional fine which
may extend to ten lakh rupees for every day during which such contravention continues.

Offences by companies (Section 50)

(1) Where an offence under this Act has been committed by a company, every person who at
the time the offence was committed was in charge of, and was responsible to, the company
for the conduct of the business of the company, as well as the company, shall be deemed to
be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to any
punishment provided in this Act, if he proves that the offence was committed without his
knowledge or that he has exercised all due diligence to prevent the commission of such
offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act
has been committed by a company and it is proved that the offence has been committed with
the consent or connivance of, or is attributable to, any neglect on the part of any director,
manager, secretary or other officer of the company, such director, manager, secretary or other
officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded
against and punished accordingly.

Explanation:- For the purpose of this section,-

(a)"company" means any body corporate and includes a firm or other association of
individuals; and

(b) "director", in relation to a firm, means a partner in the firm.

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Conclusion

It is amply clear that regulation and governance play a crucial role in determining the
trajectory of development in any sector. On the whole, the oil and gas sector in India has
evolved and performed well in certain segments, especially the midstream refineries segment
where participation and the level of competition have increased and the level of technology
used in the sector has also improved significantly. This is reflected in the additional refining
capacity currently in place in the country and the high complexity indices in many of the
newly established units. However, there are still some lacunae in governance of the sector,
which need to be addressed for it to perform better.

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