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The controversial battle over natural gas

By Latha Jishnu
January 15, 2009 14:34 IST
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The problem has been festering for decades, one of those critical issues which have pitted the states against the Centre and set off a long, litigious trail. It is an issue involving entrenched public sector oil and gas companies, aggressive private enterprises prepared to take a risk despite the lack of legal sanction and state governments determined to cock a snook at Delhi.

Caught up in the dispute is the larger issue of controlling environmental pollution in the major metropolitan cities. All these issues hinge on a simple issue: Natural gas and who has the authority to legislate on this vital natural resource.

As with all such matters there is a long and muddled history to it -- the legacy of colonial business interests, blurred lines between state and Central control and bureaucratic apathy in the ministry of petroleum and natural gas (MoPNG) that allowed the issue to become a hot potato.

The ownership and legislative control over natural gas first became a contested issue in the early 1990s when the initial offshore gas discoveries and the laying of the first gas pipeline, the HBJ line, made it easier and cheaper for industry and business in some parts of the country to run on natural gas. But long before this, more than half a dozen city gas networks had been in operation -- the oldest in Calcutta (as it was then known) dates to 1880 -- in parts of Assam, Gujarat and Bombay.

These were run by the public sector oil and gas companies while the one in Vadodara, started in 1972, was operated by the municipal corporation. Nobody, it appeared, had a problem with these operations.

The genesis of the dispute that continues to hang over the gas sector lies in the writ petitions filed in 1991 by businessmen and the Association of Natural Gas Consuming Industries of Gujarat against the Union of India and Oil and Natural Gas Commission challenging the competence of the Union to make laws on 'gas and gas works.'

It is the fallout of this case that has a significant bearing on what is indisputably the hottest business prospect in India: the setting up of city gas distribution networks across the length and breadth of the country and the supply of compressed natural gas to vehicular traffic in major cities. This is partly the result of a Supreme Court directive to state governments to clean up their heavily-polluted cities, and it is interesting to see how the famous 1985 writ petition filed by crusading Delhi lawyer M C Mehta against environmental pollution has now tied into the issue of jurisdiction over gas.

It was during the pendency of the Gujarat businessmen's writ petitions that the Gujarat legislature passed a law regulating the supply, transmission and distribution of gas. It was aimed at promoting the use of gas in the state, by both industry and domestic consumers.

That's when the Centre saw red and questioned the legislative competence of the state to pass such a law in a presidential reference in 2001. It took the Supreme Court four years to give its opinion but a five-member constitutional bench of the Supreme Court was unequivocal in declaring that only the Union government had the authority to legislate on natural gas including liquefied natural gas. The states, said the bench, had no competence to legislate on this natural resource and struck down the Gujarat law as ultra vires of the Constitution.

That was in March 2004.

Yet, within months of this order, state governments in Gujarat, Haryana and Uttar Pradesh among others were merrily granting permission to set up CGD networks and CNG stations and chopping and changing the parties to whom approvals were given. In the case of Adani Energy, permission was given to set up CGD networks in Lucknow and other places in Uttar Pradesh by the Mulayam Singh government, revoked by the subsequent chief minister Mayawati and then cleared again by her, raising questions not only about the constitutional validity but also about the criteria used to grant approvals.

In Haryana, the government granted exclusive rights to Gurgaon, Faridabad, Sonipat and Panipat, first to Haryana City Gas Distribution and then to AEL. Protests from the MoPNG, too, had no effect. A letter from the ministry to the chief secretary of Haryana pointing out that states had no jurisdiction to on natural gas were coolly ignored.

This had forced the Ministry of Petroleum and Natural Gas to remind the Supreme Court about the unambiguous opinion it had given on presidential reference and ask it to remind the states that only the Union government had exclusive powers on natural gas. In a special application filed early in 2007, the Centre urged the court to restrain all state governments from granting approvals or formulating policy on natural gas. It had also asked the court to declare the approvals given since then as null and void.

The worry here is that the ad hoc and non-transparent method in which these approvals have been given by the states would hinder uniform regulations and standards that are necessary for the equitable distribution of natural gas through trunk pipelines. In other words, limited commercial interests would gain precedence over projects of national relevance.

Ministry sources have pointed out that administered price mechanism or fixed-price gas was allotted by the government to Indraprastha Gas for supply of piped gas and CNG to the national capital territory of Delhi only after the apex court had adjudicated on the presidential reference. IGL was set up by as a joint venture of the state-owned GAIL India, the public sector BPCL and the government of Delhi under a Supreme Court directive ordering the cleaning up of the heavily polluted National Capital Region. None of the companies has been allocated any gas although they had claimed they could source it from different sources. 

The Supreme Court has not acted on the MoPNG petition so far. Instead, GAIL and IGL have been ordered to provide connectivity and gas to AEL and HCGDL. IGL has been asked to provide 0.25 MMSCMD of its 0.7 MMSCMD allocation from the ministry to each of the two private companies in Faridabad and Gurgaon as an interim measure. Gas, in fact, is being supplied in cascades to the private companies, which is a vastly-expensive proposition since the pipeline infrastructure has not been found to be of standard quality and is now being supervised by GAIL.

Industry analysts say it is curious how states have been allowed to flout the constitutional directive, and worse, to give approvals to companies without any gas allocation. These are issues which have been highlighted once again in the court.

In its latest report, which was taken on board by the Supreme Court last Friday, the Environment Pollution Control Authority for the National Capital Region has asked the court to not only endorse the Centre as the sole authority to decide CNG distribution but also its authorisation of IGL as the agency charged with the distribution of this clean fuel in the entire NCR.

The EPCA has also pointed out that the changing decisions of UP and Haryana on CGD networks have resulted in huge delays and confusion in the CNG programme that is critical for combating pollution in NCR. As for AEL and HCGD, the report says 'these companies took the risk to enter the market without any gas to sell in the full knowledge that the gas had already been allocated to IGL,' which had been asked to implement the CNG plan by the court. This puts the ball right back in the Supreme Court's corner.
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Latha Jishnu
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