Decree No. 9,616 / 2018 – Developments in the Natural Gas Sector Regulation

Posted on: Dec 19, 2018

On December 18, 2018, Decree No. 9,616/2018 (“Decree”) was enacted, amending Decree No. 7,382/2010 – which regulates Chapters I to VI and VIII of Law No. 11,909/2009 (“Gas Law”) – providing for activities related to the transportation, treatment, processing, storage, liquefaction, regasification and commercialization of natural gas. The Decree seeks to advance on certain topics debated by the industry within the framework of the “Gas to Grow” (Gás para Crescer) program and reflected in Bill of Law 6,407/2013 (intended to replace the Gas Law), which has not progressed in Congress since December 2017.

The changes introduced by the Decree slightly increase the flexibility on the National Agency of Petroleum, Natural Gas and Biofuels’ (ANP) ability to regulate certain matters, and we expect that ANP will soon take measures towards either issuing or revising important regulations for the natural gas sector. In this regard, we highlight some of the points we consider most relevant, on which we expect new regulations:

  • Gas pipelines not falling within the established classifications provided in law for production outflow, transfer or transport pipelines will be classified in accordance with ANP’s regulation. This may assist on determining rules applicable to cases such as those of gas pipelines connecting natural gas processing or treatment units or storage facilities to transport or distribution installations;
  • Certain provisions relevant to the process of construction and expansion of transportation pipelines (including questions on public call and bidding processes) that Decree 7,382/2010 extrapolated the provisions of the Gas Law were revoked (provisions that coincide with terms of the Gas Law were maintained). Accordingly, the ANP gains some flexibility to regulate certain aspects of the process of awarding concessions for the construction or expansion of transportation pipelines;
  • The Decree established the concept of a Natural Gas Transportation System, “formed by interconnected transportation pipelines and other facilities necessary to maintain its stability, reliability and safety, in accordance with ANP’s regulations”. The organization of the pipeline network by Natural Gas Transportation Systems will also serve to support contracting capacity on an entry-exit model, in which entry and exit can be contracted independently, as introduced by the Decree;
  • Considering that the Gas Law does not impose the obligation of granting access to third parties to production pipelines, natural gas treatment or processing facilities, LNG terminals and liquefaction and regasification units, the Decree has presented limited innovations on the subject: it (a) stresses that refusal of access that constitutes anti-competitive behavior will subject the relevant agents to appropriate sanctions; and (b) reinforces the role of the ANP as a promoter of good practices with respect to access to outflow installations, LNG processing facilities and terminals, as well as in resolving disputes between parties involved in discussions on access issues;
  • New modalities of natural gas transport services introduced by the Decree and subsequent regulation will not affect the rights of transporters arising from existing contracts. In the meantime, ANP may establish incentives in relation to the maximum revenue allowed to transporters, to adjust the existing natural gas transportation service contracts in view of organizing the transportation systems to be covered with the new service modalities.

Finally, the Decree expressly entrusts the Ministry of Mines and Energy and the ANP with the responsibility to coordinate with the States and with the Federal District the harmonization and improvement of the regulations pertaining to the natural gas industry, including in relation to the regulation of the free consumer. The debate on free consumer regulation is considered one of the main obstacles to the continuation of discussions on a new gas law.

In summary, the Decree, respecting its legal and constitutional limitations, tries to pave the way to address some of the issues seen by the natural gas industry as important to attract investments and develop the sector. It is expected that in 2019 efforts will be made to approve a new gas law to address other important issues that the Decree could not address due to such limitations.