January 27 2003 Legislative Update AZB & Partners | Energy & Natural Resources - India Energy & Natural Resources Guidelines for Laying Petroleum Product PipelinesCost Accounting Records (Petroleum Industry) Rules 2002 Guidelines for Laying Petroleum Product PipelinesThe Guidelines for Laying Petroleum Product Pipelines, recently approved by the government, outlines principles for government grants of land-use rights for laying down petroleum product pipelines. The guidelines were issued pursuant to the Petroleum Pipelines (Acquisition of Right of User in Land) Act 1962. The guidelines stipulate 'common carrier' norms for the operation of petroleum product pipelines which are not meant for captive use. Proposals for the establishment of these so-called 'commercial pipelines' by developers are to be publicized by the Ministry of Petroleum and Natural Gas. Interested parties may obtain capacity in the pipelines on a take-or-pay or other basis agreed with the developers. Additionally, developers must provide a 25% surplus capacity to be made available for third-party use. Although crude oil and natural gas pipelines do not appear to be governed by the guidelines, the term 'product pipelines' is not defined. The guidelines are only an interim regime pending the constitution of the petroleum regulatory board, which is contemplated pursuant to the Petroleum Regulatory Board Bill, presently pending before Parliament. The tariff for use of commercial pipelines is subject to government control. In the absence of principles for tariff fixation, there is no certainty as to whether any future attempt at tariff fixation will ensure adequate recovery of costs and return. Also, several contractual terms and provisions may also have a bearing on the tariff, such as: duration of the contract; nature of representations and warranties; service standards; contractual liabilities; and take-or-pay provisions.Ideally, any regime aimed at controlling the tariff should strike a balance between equitable access to customers and commercial freedom to the developer. The guidelines do not deal with the grant of right of way on public or governmental lands, which are owned by governmental authorities, and undertakings such as railway land, riverbeds and roads. Cost Accounting Records (Petroleum Industry) Rules 2002The Ministry of Finance and Company Affairs has approved the Cost Accounting Records (Petroleum Industry) Rules 2002, which will take effect on April 1 2003. The rules apply to companies (exceeding certain capital and turnover limits) engaged in the production, processing and manufacturing of crude oil, gases and other petroleum products. Detailed provisions are prescribed for the maintenance of books of accounts and records in prescribed formats, and for the disclosure of specified details by the companies governed by the rules, in respect of utilization of materials, labour and other cost items such as: fixed assets and depreciation; utilities; survey costs; exploration and development costs; and drilling costs. Related party transactions are subject to more stringent recording norms. The rules appear to also govern foreign companies carrying out exploration and production activities in India. For further information on this topic please contact Bahram N Vakil, Anu Iyer or Manisha More at CZB & Partners by telephone (+91 22 5639 6880) or by fax (+91 22 5639 6888) or by email ([email protected] or [email protected] or [email protected]).