Draft Guidelines on Release/Trading in Transmission Pipeline capacity

Transcription

1 Draft Guidelines on Release/Trading in Transmission Pipeline capacity 1. Petroleum & Natural Gas Regulatory Board ( PNGRB ) had formed a group to look into the aspect of Trading in Pipeline Capacity in furtherance with the mandate given in section 11 (a) of the PNGRB Act, 2006 and the provisions of the PNGRB (Access Code for Common Carrier or Contract Carrier Natural Gas Pipelines) Regulations, 2008 and the PNGRB (Guiding Principles for Declaring or Authorizing Natural Gas Pipeline as Common Carrier or Contract Carrier) Regulations, It was expected this would establish a basic framework for secondary market trading in pipeline capacity which will have a strong impact on increasing the liquidity, competitiveness, efficiency of markets by ensuring optimum utilization of the existing infrastructure and ensuring risk mitigation for shippers. During the discussions, it was agreed that the Group would suggest a road map for pipeline capacity trading, assuming availability of sufficient quantities of spot R-LNG. 2. While issues on assessing the gaps in the present regulations and the need to promote trading of domestic gas to make the pipeline capacity trading completely workable will the taken up in stages, the Group focused on the following items while developing the tentative road map for capacity trading to start with on spot LNG:- (a) Trading in capacity can only work effectively if operating principles & procedures are standardized and streamlined between transporters. Since the window of allocation and nomination will be very small, it is essential to address this issue. (b) Looking at methodologies to incentivize the transporter to promote trading of capacity towards helping the end consumer. (c) Ensure that shippers do not use capacity trading to buy capacities /pre-empt or block genuinely interested parties and then trade at higher prices. (d) This capacity trading process could be tested as a pilot project for a limited period and could be further refined based on the first hand experiences from the pilot.

2 3. The below mentioned process for capacity release and trading is an attempt to provide necessary roadmap for a more elaborate rules and procedures in future. Initially it is proposed to use the website of the transporter as a trading platform for which the transporter should be suitably compensated. In the long term with development of markets, trading of transmission capacity can be taken up through an independent exchange. 4. The applicability of the process will be to the:- (a) Shipper(s)/Consumer(s) ( Releasing Shipper '), having firm capacity contract with the Transporter, either on contract or common carrier basis and who wants to release / trade capacity in the open market for a specified duration (b) Shipper(s)/Consumer(s) who desires to purchase such capacity in part or full for the whole or part of the specified duration ( Replacement Shipper ') 5. The process of capacity release/trading would involve the following steps after the Releasing shipper has decided to release capacity for a specified duration:- (a) The capacity release by the Releasing shipper and its trading should be done only if there are capacity constraints in the pipeline i.e., the capacity (entry/exit) has been contracted. Idle capacity should be booked first. (b) The Releasing Shipper should inform (through designated means - etc) the Transporter along with all necessary details (including but not limited to the extent of capacity to be released at Contract Path (entry & exit points) and period of capacity release) as soon as releasing shipper is willing to release/trade the capacity with a copy of the same to PNGRB. (c) The minimum period traded for should be at least 5 days 1. (d) Transporter shall host the details of spare capacity so released within 48 hrs from the time of intimation from the Releasing Shipper) for each section in the pipeline between the entry and the exit points of the Shipper along with duration of capacity release (format for the same to be agreed) 1 There is another view that (i) the capacity release by the releasing shipper and its trading should be done only if there are capacity constraints in the pipeline i.e., the capacity (entry/exit) have been contracted. Idle capacity should be booked first; (ii) the common carrier contracts which are meant for short term durations should not be eligible for capacity release; and (iii) capacity release should be for a minimum period of 30 days.

3 (e) Transporter should conduct an Open Season process on its website with a window of 48 hours and invite bids for each such section where capacity is available from the Replacement Shipper to book capacity. Capacity should be allocated to the highest bidder (highest revenue basis) and any remaining capacity would go to the next highest bidder and so on. In case no bidders participate in the Open Season process, the capacity will be allocated on First Come First Serve (FCFS) basis, after the closure of open season process. (f) Replacement Shipper(s) should bid for the transportation tariff between their entry and exit points on transporter network along with duration of requirement within the Open Season window. The Shippers can bid beyond the Open Season window also in case the capacity in part or full remains unallocated (The same to be declared by the transporter on its website on completion of the Open Season process) (g) The Replacement Shipper(s) can bid for the transportation tariff in the range of 100% - 125% 2 of the published tariff for the said pipeline by PNGRB. The reason to provide a band is to take care of demand and supply scenarios as well as provide a cap and floor till the time market matures. (h) Under all circumstances liability / obligations of Releasing Shipper would remain as per the Gas Transmission Agreement (GTA) between him and the transporter. (i) After receiving the bids the Transporter shall award the capacity to the Replacement Shipper immediately after closing of open season process. In case the delivery points are different between Releasing Shipper and Replacement Shippers and capacity constraints are existing on the new entry or exit points, the Transporter shall provide reasons for the same within 24 hours of closing of Open Season window. (j) The new GTA for capacity trading should be a tripartite agreement between Releasing Shipper, Replacement Shipper and the Transporter (Standard Tripartite agreement to be hosted on the Transporter's website). 2 There is another view that the published tariff for the pipeline by PNGRB should serve as the cap without specifying any floor. Alternatively the bidding can take place within a band (floor & ceiling) of 75% to 100% of the published tariff.

4 (k) Replacement Shipper should remit the total agreed revenues (based on bid the Transaction Value ) to the Releasing Shipper. (l) The Releasing Shipper shall remit all charges to the Transporter as per the GTA. In addition, 20% of the Transaction Value ( Total value of transaction between Releasing Shipper and Replacement Shipper ) derived from the capacity release will be paid to the Transporter by the Releasing Shipper as handling and administrative charges (Payment of part of revenue to Transporter will act as an incentive for the Transporter to actively enable the process). (m) General terms / conditions / procedures would be as per the sample provided in the Annexure. *****

5 Annexure Sample General Terms & Conditions for Release / Trading of capacity in Transmission pipelines The objective of the document is to create a secondary transportation market where holders of transportation contracts can release & resell temporarily (Minimum 5 days not more than 364 days) unused capacity to other shippers as well as lay down terms & conditions under which such capacity trade will be carried out. SECTION 1. PURPOSE AND PROCEDURES 1.1. The purpose of the Contract formed by the following procedure is to facilitate trade, avoid misunderstandings and make more definite the terms of contracts for the release, sale and purchase of transmission capacity booked either on contract or common carrier basis. It is intended for transactions of one year or less (but not less than 7 days), and as a default agreement. This contract is valid for all kind of pipelines systems The parties shall use the following contracting procedure. Any transmission capacity release, sale and purchase transaction effected through the bid procedure as per laid down regulation on Release and trading of transmission capacity will follow these standard terms & conditions The parties shall be legally bound by the terms and conditions laid down under this standard contract from the time the TSP accept the bid offered by replacement shipper. Acceptance of bid offer should have this standard terms & conditions attached and as such the same shall be considered to have been "signed" by all the parties involved The releasing shipper, the TSP and the Replacement shipper will have deemed to have consented to this agreement and all other relevant regulations like Regulations on Release and trading of transmission capacity, access code for common or contract carrier for natural gas pipelines ( Relevant Regulations ) All sections of relevant regulations will apply in full to the transactions for release, sale and purchase of transmission capacity and any dispute under the aforesaid transaction and this agreement would be in line with principles of all relevant regulations Definitions and sections of relevant regulations not produced in this contract shall follow the relevant regulations SECTION 2. DEFINITIONS 2.1 Assignment of Transmission Capacity means the assignment of capacity by the Releasing Shipper to the TSP in favour of replacement shipper for the specified duration through process of release of capacity as per relevant regulations.

6 2.2 Acceptance letter means the letter issued by the TSP awarding the capacity to the replacement shipper pursuant to an open season process, with a copy to the releasing shipper detailing the bid price (Rs Million), capacity in pipeline, Contract Path (with Entry & Exit points), duration for which capacity is bid along with any other special terms & conditions not forming part of this General Terms & Conditions. Such special terms & conditions should be in accordance with the relevant regulations and should be webhosted on the website of TSP before bidding. 2.3 Releasing Shipper means shipper(s) or consumer(s) having firm capacity contract with the Transporter, either on contract or common carrier basis and who wants to release or trade capacity in the open market for a specified duration. 2.4 Replacement Shipper means shipper(s) or consumer(s) desirous of purchasing capacity released in part or full for the whole or specified duration. 2.5 Transportation Service Provider (TSP) means an entity authorized by the Board or authorized by the central government prior to the appointed day for laying, building, operating or expanding a natural gas pipeline 2.6 Party means releasing shipper, TSP or replacement Shipper, individually, and Parties means releasing shipper, TSP and replacement Shipper, collectively. 2.7 British Thermal Unit and its abbreviation Btu mean the quantity of heat required to raise the temperature of one (1) avoirdupois pound of pure water from fifty-nine degrees Fahrenheit (59 F) to sixty degrees Fahrenheit (60 F) at an absolute pressure of fourteen decimal six nine six pounds per square inch ( psi). 2.8 Business Day means each Monday, Tuesday, Wednesday, Thursday and Friday excluding any public holiday in the state of as stated in the official gazette. 2.9 Contract" shall mean the tri-party legally-binding relationship established by i) release and assignment of capacity by releasing shipper ii) bid by replacement shipper for the contracted capacity for the specified period and iii) acceptance of valid bid by the TSP which includes the acceptance letter. All these documents along with these terms & conditions form a valid tri-party contract "Contract Price" shall mean the price bid (in Rupees Million) by the Replacement Shipper and accepted by the TSP through a written communication "Contracted capacity" shall mean the capacity in the pipeline bid by the Replacement shipper and accepted by the TSP Original Contract shall mean the contract entered into by TSP and the Releasing shipper under which the capacity is originally booked by Releasing shipper

7 2.13 Term means the period stated in the acceptance letter SECTION 3. PERFORMANCE OBLIGATION 3.1. Transporter agrees to sell and deliver on behalf of the releasing shipper, and Replacement shipper agrees to receive and purchase, the Contracted Capacity for a particular transaction in accordance with the terms as per acceptance letter and herein. Sales and purchases shall be on firm basis only. 3.2 All obligations of the releasing shipper under the Original Contract shall remain valid and binding on the releasing shipper at all times, including the period of capacity release. 3.2 EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER THE CONTRACT, WHETHER IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY), OR OTHERWISE, FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR PUNITIVE DAMAGES. SECTION 4. TRANSPORTATION, NOMINATIONS AND IMBALANCES 4.1. TSP shall have responsibility for transporting the Gas to the Exit Point(s) and for delivering such Gas at a pressure sufficient to affect such delivery but not to exceed the maximum operating pressure of the Replacement shipper. Replacement shipper shall have responsibility for transporting the Gas from the Exit Point(s) The parties shall coordinate their nomination activities, giving sufficient time to meet the deadlines of the affected TSP. Each party shall give the other party timely prior notice, sufficient to meet the requirements of TSP involved in the transaction, of the quantities of Gas to be delivered and purchased each Day. Should either party become aware that actual deliveries at the Exit Point(s) are greater or lesser than the Scheduled Gas, such party shall promptly notify the other party The parties shall use commercially reasonable efforts to avoid imposition of any Imbalance Charges. If replacement shipper receives an invoice from a TSP that includes Imbalance Charges, the parties shall determine the validity as well as the cause of such Imbalance Charges. If the Imbalance Charges were incurred as a result of replacement shipper s actions or inactions (which shall include, but shall not be limited to, replacement shippers failure to accept quantities of Gas equal to the Scheduled Gas), then replacement shipper shall pay for such Imbalance Charges. SECTION 5. QUALITY AND MEASUREMENT All Gas moved by the releasing shipper shall meet the quality and heat content requirements of the TSP. The unit of quantity measurement for purposes herein shall be one MMBtu.

8 Measurement of Gas quantities hereunder shall be in accordance with the established procedures of the TSP and in accordance with the access code laid down by the PNGRB. SECTION 6. TAXES 6.1 Releasing shipper shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ("Taxes") on or with respect to the Gas prior to the Exit Point(s), at and after the Exit Point(s). If a party is required to remit or pay Taxes that are the other party s responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof. 6.2 Any tax incident due to the resale of transmission capacity will be borne by the replacement shipper whereas any tax due to service charges would be borne by the TSP SECTION 7. BILLING AND PAYMENT 7.1 All invoices shall be raised by the TSP to the releasing shipper as per the acceptance letter. 7.2 The capacity release, assignment, sale and purchase transaction does not absolve the releasing shipper of its commitment under the original contract 7.3 The TSP will retain 20% of the total revenues received from replacement shipper excluding the imbalance and other system in-disciple charges and pay the remaining amount to the releasing shipper. Thus TSP acts as a clearing agent retaining 20% of the charges as service fees. 7.4 The billing and payment cycle will be as per the original contract between the TSP and the releasing shipper and will be specified in advance by TSP as bid terms SECTION 8. DISPUTES 8.1 If replacement shipper disputes in good faith all or part of any amount included in any Invoice (such disputed amount is hereafter referred to as the Disputed Amount ), replacement shipper shall nonetheless pay the invoice in full by the Due Date and shall notify TSP and releasing shipper of the dispute. Replacement shipper shall provide to TSP, within seven (7) days following receipt of the disputed Invoice, a realistic and reasonable written estimate, explained in writing with detail of the amount that should, in the reasonable opinion of replacement shipper, be payable by replacement shipper to TSP in respect of such billing period. 8.2 Notwithstanding above, if a Party does not dispute or indicate an error in (by notice) a Invoice issued hereunder within ninety (90) days of receiving it, such Invoice shall be deemed to be correct, complete, conclusive and finally accepted by such Party.

9 SECTION 9. TITLE, WARRANTY AND INDEMNITY 9.1. Unless otherwise specifically agreed, title to the Gas shall pass to replacement shipper at the Entry Point(s) Replacement shipper warrants that it shall have the right to convey and holds good and merchantable title to all Gas moved in TSP system, free and clears of all liens, encumbrances, and claims. SECTION 10. MISCELLANEOUS If any provision of this Contract is determined to be invalid or unenforceable by any court having jurisdiction, such determination shall not invalidate or make unenforceable any other provision of this Contract Each party reserves to itself all rights, set-offs, counterclaims, and other defenses to which it is entitled. No waiver of any breach of this Contract shall be held to be a waiver of any other or subsequent breach. *****