Dismantling of APM: Case Law

Before PNGRB: Reliance Industries Limited vs IOCL and Others,

Complaint No 4 of 2008, Decision on 2 July 2012
 Filed under Section 11 and Section 12 of the PNGRB act one section laid down
obligation on the board to foster free and fair competition and other section authorize
board to adjudicate on the matter related to marketing of notified petroleum product.
 Contention Petitioner- Cartelization by PSU, restrictive, unfair trade practice

To order them to follow policy issued by govt. and unfollow predatory pricing and avoid
monopolization of market.

 Indian GOvt decide to dismantle APM Marketing rights were granted to RIL, Essar &
Shell
 And govt allowed Private Company to enter into market of Fuel. Provided authorization
to Complainant and on basis of govt, decision to dismantling of APM, Complainant
invested huge amount of Money in assets to market petroleum products.
 But even after dismantling of APM, PSU didn’t tune the price of petroleum product to
international price. They keep the price of petroleum product very low. Restrictive trade
practice defined under s.1 (zi), according to which transaction which reduce the
competition in the market will be consider as restrictive trade practice.
 Govt. decided the price on which any PSU can sold the petroleum product even after
dismantling of APM.
 Contention by respondent, that board has not authority to decide the said matter as it is
related to fixation of price. Even board has not authority to adjudicate matter of those
petroleum products which are not notified, as complain was against the non- notified
petroleum products. But issue related to notification was already dealt by APTEL.
 Contention by respondent, that board has duty to monitor consumer interest. And
allowing complainant claim regarding the price would lead against the interest of
consumer .Price would increase as a result.
  Respondent claim govt. is regulating price as sovereign, if it is regulates it as sovereign
their it cannot be questioned, administrative action cannot be questioned by the courts.
Separation of Powers.

 Complainant claim that govt. As majority shareholder regulates the price, and board is
authorize to take cognizance of that matter, if it is so.

 Respondent relied on Hindustan Development corp. and Others, where cartelization and
restrictive trade practice is defined , main part of the definition was that a transaction can
be consider as restrictive trade practice, predatory pricing and monopolization,
cartelization when they have chance to recover loss in future by lowering down the price
in present.

 Respondent argue that they are not the one who determined the price, their action cannot
be termed as restrictive trade practice. They cannot become the party to the case.

 Contention made by complainant is that issuing notification to PSU is not policy as it is

implemented only y to PSU, and any notification to be termed as policy it needed to be
applied to all players. And govt is regulating price as majority shareholder of PSU. So
there can be case against them.

 Even notification was policy, it cannot be implemented if it violates any legislation Case
can be filed against company only not against majority shareholder,

What Court held –

 Issue regarding Jurisdiction has been settled out by reading other provision like section
24 and other section of the act where word ‘petroleum product’ has been used. Then
Board also failed to accept the claim of loss suffered by the pricing of petroleum product
by PSU.As the complainant failed to establish the same.
 Court laid down two essential for transaction to be termed as predatory pricing

1. When price of products kept low to gain monopolistic control over the market.
2. When monopoly is gained, price would be increased by entity to recover loss.

 PSU didn’t raise price they were in phase of under recoveries from many times. The
charge of predatory pricing therefore, can be deemed baseless.
 Court is reluctant to accept the claim made by complainant, because nothing was
established like no formal agreement, no increase in price of petroleum product and no
expectation of it.
 Policy to dismantle APM and to not to regulate the price was issue in March 2002 and
direction to regulate price was issued latter and no direction should be issued against the
policy of Govt.

Next question which needed to be addressed is that whether notification to dismantle the APM
was guarantee that price would not be regulated and parity with import price of petroleum
product. That was not so it was to increase competition in market.it was guideline \

if an efficient entity decides to charge lower price that would result in lower profits, this cannot
be construed as restrictive trade practice.

 Court held that govt is right to issue direction as inflationary nature of crude price is
there,

Shareholder is interested in maximize profit but this was not so Direction was in nature of order
from sovereign. But this is not universal rule.

 Govt of India cannot be expected to pursue the sole objective of profit maximization,
govt cannot be faulted for pursuing such policies especially.
 Govt also loose the sight that low domestic prices were eroding the very viability of PSU
OMCs a situation that will clearly lead to loss of welfare instead of maximizing it.
 Court held that the allegation against them cannot be establish, it was an unintended
result of the obligation imposed by govt. on them
 To establish that the respondent engaged in anti-competitive behavior, the pecuniary
advantage accruing from such action will have to be established.
  Key Objective of the establishment of board was to promote consumer interest, allowing
claim of respondent will actually jeopardize it. Consumer interest would not be served by
mandating that domestic prices should be benchmarked to import parity as claimed by the
complainant

Dedicated Pipeline: M/s GREAT EASTERN ENERGY CORPORATION LIMITED

(GEECL) 31 March 2014, PNGRB Order, Case No. Legal/3/2011

• Facts: GEECL is in the business of exploitation, production and sale of coal bed methane
(CBM), which falls within the definition of natural gas under the PNGRB Act from its
CBM block in Raniganj, West Bengal.

• Under the CBM contract with the Government GEECL has the right to produce and
market CBM gas in India and also lay pipelines for evacuation of gas from the well head
to supply and sale the same to customers.

• GEECL started commercial production in 2007 and claims to have set up a dedicated
pipelines to supply such gas to its customers.

• After the enactment of the PNGRB Act, all entities were asked to submit information
with respect to its pipelines;

• GEECL submitted the relevant information with respect to its pipelines to PNGRB.

• Upon review, PNGRB asked GEECL to apply for authorization of its natural gas pipeline
as it did not have any prior authorization from the Central Government

• GEECL was also proposing to set additional pipelines to connect to Kulti and Durgapur
from Asansol.

• PNGRB sent notice to GEECL to again apply for authorization as per the PNGRB Act.

• GEECL informed PNGRB that it has and proposed to dedicated pipelines to sale gas to
its customers, and that it has already submitted information with respect to such dedicated
pipeline as required by law.
 • PNGRB informed GEECL that a pipelines which serves more than one customer, is not a
dedicated pipeline, and will qualify as common carrier pipeline.

• PNGRG referred to definition of ‘natural gas pipelines’ which includes “any pipeline
including spur lines for transport of natural gas”.

• Further, for a pipeline to qualify as a dedicated pipeline it has to for a specific customer
to meet his requirement and not for resale.

• In the case of GEECL, there are more than one customer being served using the spur line.

• GEECL did not take any action, as a result a show cause notice was sent by PNGRB to
the company

PNGRB contention

 Dedicated pipeline- specific consumer not for resale.

 Natural gas pipeline also include spur line
 In that case natural gas pipeline of GEECL has spur lines
 GEECL is supplying more than one consumer
 You can have more than 1 spur but not more than 1 Consumer.

GEECL Contention

 Pipeline used by one entity no other entity, so not common carrier not contract carrier
 So no jurisdiction of PNGRB to regulate it,
 We have authorisation under CBMPSC
 But under the act only crude pipeline are excluded.
 My customer not resale this,
 Then the regulation of PNGRB –“to provide dedicated pipeline- customerS served”. regulation
itself states that
 And building separate pipeline for each customer is not economically viable

GEECL further filed writ petition before the Delhi High Court against such notice and order of PNGRB
asking GEECL to stop all work. Such order was dismissed and PNGRB was asked to decide upon the
issues

PNGRB Order and arguments

• PSC Argument: PNGRB Act only protected certain agreements under section 63:
 • Further, if GEECL stand is to be taken then all those cases where the producer decides to directly
sale gas to customer, will fall outside the purview of the PNGRB Act. That is against the overall
objective of the Act.

• GEECL then will escape all statutory obligation to its customer with respect to safety
and technology standard, transportation rate and third party access

• Under PNGRB Act "common carrier" means such pipelines for transportation of petroleum,
petroleum products and natural gas by more than one entity as the Board may declare or
authorize from time to time on a nondiscriminatory open access basis …….. but does not include
pipelines laid to supply-(i) petroleum products or natural gas to a specific consumer

• The above definition makes it clear that GEECL pipeline is not dedicated pipelines as it
does not serve specific customer, but more than one customers

• The Act does not recognize any dedicated spur line. Spur line is part of the natural gas pipeline.
Refer to the definition of “Natural Gas Pipeline”.

• Either a pipeline is a dedicated pipeline or a natural gas pipeline

• To be a dedicate pipeline both the requirement of specific customer and no re-sale have to be
satisfied.

• GEECL pipeline is a natural gas pipeline requiring authorization under the PNGRB Act.

• Penalty of INR 1 crore and INR 2 lakhs for each day of delay in payment

Essar Steel Ltd vs Union Of India & Ors on 19 April, 2016, CIVIL APPEAL NO. 4610 OF 2009

ESSAR steel filed case against UOI & others against this order – IOCL, BPCL, and GSPCL had contract with
ESSAR- to sell gas to ESSAR. IOCL BPCL GSPCL buy from PETRONET and then sell to ESSAR at dollar 2.94
till 2008.

Then order for price pooling came in 2007 (2007 to 2008- 15 months) which increase the price but Essar
claim that they need it at 2.97 for remaining year.

PETRONET sent notice to IOCL BPCL GAIL that they will get gas at new pool price.

ESSAR at HC Gujrat

Writ petition was filed before the High Court of Gujarat and Essar claimed:

 The price pooling policy is bad in law, and

 claimed refund of the excess amount paid pursuant to price pooling policy

High Court of Gujarat: upheld the impugned policy decision dated 06.03.2007 and dismissed the Writ
Petition filed by the appellant
HC said that this policy was made by empowered group of minister- HC held that it is law- controversial-
though not passed by Parliament.

 Party to Contract cannot bind Indian Government to not interfere with policy.

Now at the Supreme Court

• ESSAR – this is not in interest of Public-

• PLL reneged and violated the terms of the GSA, all for the benefit of a single entity, that is the
Ratnagiri Gas and Power Private Limited

• executive actions of the Union of India which operates to the prejudice of any person must
necessarily have legislative backing.

• Policy is not backed by any law

• It is contended that in the present case, no entity except the Ratnagiri Power Project was
benefited as a result of the change of policy by the Central Government.

Backed by Legislature

• Satwant Singh Sawhney v. D. Ramarathnam, Asstt.

• Article 14 says that the State shall not deny to any person equality before the law or the
equal protection of the laws within the territory of India.

• One of the aspects of rule of law is that every executive action, if it is to operate to the
prejudice of any person, must be supported by some legislative authority.

• Maganbhai Ishwarbhai Patel v. Union of India:

learned senior counsel contends that the impugned policy decision of the Union of India has no
statutory flavour, as price pooling has been implemented neither through statute nor delegated
legislation

Form of Executive Award

Jaipur development Authority’s case- so every executive decision should be backed by president or
governor Article 298 & 299- as there is no law so no delegated legislation.it is not more than internal
memo. No sign of president assent.

Right to Change Policy-

Government Executive Constitution power- can change policy with change in condition – change in
policy should be done in that way that it not appear arbitrary or with ulterior – Wednesbury principle-
said that if any policy it shouldn’t be arbitrary or malafide, reasonableness-
It is not for Ratnagiri it is also for whole other entity – even other entity gain the profit.

Refund Claim- government said that you already obtained it from customer if we allow the same it will
be unjust enrichment.- refund claim will be against the law.

Judgement:

• The main issue which arises for our consideration is whether impugned policy decision dated
06.03.2007 is bad in law, and if so,

• whether the appellants are entitled to any refund of the amount paid by them as a result of
increase in price of RLNG after the impugned policy decision dated 06.03.2007.

• Contract 11.4 change in law clause- expressly mention the word policy- if policy or law change
the price there should be revision in price. So ESSAR has to change its price if (pool pricing)
policy comes within that policy.
• Judicial review of the Executive order.
(a) if it is unconstitutional;
(b) if it is de'hors the provisions of the Act and the Regulations;
(c) if the delegate has acted beyond its power of delegation;
(d) if the executive policy is contrary to the statutory or a larger policy.”
 Court shouldn’t interfere with the economic policy. It must be necessary left to the expert body.
Court even can’t decide without expert. Court doesn’t know the economic aspect not know
about the sector- even expert opinion differ-----PEERLESS GENERAL FINANCE CASE.
 Court can interfere until it is manifest arbitrariness.

DOWNSTREAM SECTOR ISSUE

Downstream Sector:

The downstream sector of the oil and gas industry involves the refining of the crude and/or raw NG
obtained in the upstream sector as well as selling or distributing the products obtained. Many products
are derived from the refining of crude oil and these may include diesel oil, LPG, plastics, rubbers etc.

The downstream sector of the industry is the sector that relates with the consumers. Facilities involved
in this sector include petrochemical plants,oil refineries, NG distribution companies retail outlets ans so
forth

Downstream Challenges:

Lot of challenges are faced in the downstream sector. The operating capacity of the global Refining
industries is continually constrained and therefore there is need for expansion in their various phase.
Crude oil produced today is becoming heavier and sourer and product specifications are tightened by
increasing strict environmental Legislation. This has led to the need for changes in the refining
configuration of many oil Players.

The main challenges faced by the downstream sector are:

1- Business Joint ventures:

Downstream sector is facing serious challenge due to lack of information Knowledge management. In
order to overcome, there is need for joint sources and alliances between various Industries to be able to
arrest this problem in the oil and gas sector

2- Global refining capacity:

There is an emergence of a structural global surplus with significant economic growth in various areas.
The cumulative impact on a global scale would reduce magins.

However, the key factors of the growth are as follows:

A) much of the planned expansion were Sponsored by the natural oil companies

B) must of the new capacity will capture economies of scale with greater degree of efficiency and
sophistication.

3. Corporate communication:

Corporate communication involves orchestrating and Managing different internal and external
communication in order to create favourable point of view among stakeholders. It help stakeholders to
be linked to the company in question.

In the downstream sector, Corporate communication is very important in order ti determine efficiency
in the various process.

4. Distribution activities fir oil products:

Distribution and trading is very vital aspect of the downstream sector of the oil industry. Without
Establishing Appropriate avenues for trading the operation of the oil and gas industry will be futile.
Thus the value chains should be properly examined in order to ensure efficient trading and distribution
of the products