On June 24, 2019, the Brazilian Energy Policy Committee – CNPE approved Resolution No. 16 (“CNPE Resolution 16/2019”), which establishes guidelines and improvements in respect of energy policies geared to promoting free competition in the natural gas market, in keeping with the regulatory model already established in Brazil (i) by the Gas Law of 2009 (Law No. 11909 of March 4, 2009), (ii) by Decree No. 7382 of December 2, 2010, which regulated the Gas Law, and (iii) by recent Decree No. 9616 of December 17, 2018, which amended, broadened and excluded certain provisions of Decree No. 7382/2010.
CNPE Resolution No. 16/2019 came into force on June 26, 2019 (publication date), but still depends on a number of actions to be taken by the “player holding a dominant position in the natural gas market” (presumably, Petróleo Brasileiro S.A. – “Petrobras”) and on regulations to be issued by the Brazilian Petroleum, Natural Gas and Biofuels Agency - ANP and state regulatory agencies under their respective authority, to achieve the intended results.
Some of the guidelines laid down by CNPE Resolution No. 16/2019 are also expected to be contemplated by a cease-and-desist commitment between the Administrative Council for Economic Defense – CADE and Petrobras, as it happened recently as regards the refining market. We will address this topic separately, as the resolution on this matter has been postponed.
As a result of the work of the Committee for Promotion of Competition in the Natural Gas Market in Brazil, as established by CNPE on April 9, 2019 and composed of representatives of the Ministry of Mines and Energy - MME, of the Ministry of Economy, of ANP, of CADE and of the Energy Research Company – EPE, CNPE Resolution No. 16/2019 also relied upon the participation and contributions of other players of the sector (representatives of the industry, academy, state governments, consumers, among others) in the drafting process.
Likewise Decree No. 9616/2018, CNPE Resolution No. 16/2019 has emerged as one more mechanism to promote infralegal changes in the natural gas sector, while the “new gas law” is being debated at the House of Representatives (Bill of Law No. 6407/2013 and its clean bills).
The main guidelines established by CNPE Resolution No. 16/2019 are related to the transition to a new natural gas market, which means a competitive market with the participation of several players.
This transition will occur through unbundling of the sector, access to the infrastructure used for flowing, processing, liquefaction, regasification and transportation of natural gas, capacity release by Petrobras, a gas release program to be conducted by Petrobras through auctions, among other mechanisms.
In this regard, the following are expected: implementation by ANP of criteria for verification of autonomy and independence of transporters, common network codes and common codes for access to pipelines, natural gas processing units and LNG terminals, market areas and their virtual trading hubs and publication of standard gas transportation agreements, among other measures.
Federative Pact Proposal
Unlike the electric power industry, the natural gas sector is subject to state and federal laws given the powers conferred upon the states to exploit local piped gas services, and the monopoly held by the Federal Government over exploitation and production, import and export, and transportation activities.
In this scenario, it is worth mentioning the incentive for the states and the Federal District to voluntarily adopt regulatory practices in respect of local piped gas services that contribute towards market liberalization, including:
- amendments to the concession contracts;
- regulatory principles for free consumers, self-producers, and self-importers;
- transparency of the natural gas supply agreements to meet the needs of the captive market;
- privatization of state concessionaires of piped gas services, including a suggestion for evaluation of the opportunity and convenience of defining a new concession contract; and
- implementation of tax changes discussed within the National Finance Policy Council – CONFAZ, towards harmonizing the collection of State Tax on Distribution of Goods and on Interstate and Intrastate Transport and Communication Services (“ICMS”) with the entry/exit mechanism (incorporating the concept of contractual flow instead of physical flow as triggering event).
- It is important to note that each state has its own laws and regulations on concession of public services, more specifically local piped gas services. Such services are also regulated by concession contracts, which provide for specific terms and conditions in each case.