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IBP1097_19

GÁS PARA CRESCER PROGRAM: THE NEW


REGULATORY FRAMEWORK OF THE
BRAZILIAN NATURAL GAS
TRANSPORTATION SYSTEM
Raphael M. Paciello1, Carlos Tomaz A. Ribeiro2

Copyright 2019, Brazilian Petroleum, Gas and Biofuels Institute - IBP


This Technical Paper was prepared for presentation at the Rio Pipeline Conference and Exhibition 2019,
held between 03 and 05 of September, in Rio de Janeiro. This Technical Paper was selected for presentation
by the Technical Committee of the event according to the information contained in the final paper submitted
by the author(s). The organizers are not supposed to translate or correct the submitted papers. The material
as it is presented, does not necessarily represent Brazilian Petroleum, Gas and Biofuels Institute’ opinion,
or that of its Members or Representatives. Authors consent to the publication of this Technical Paper in the
Rio Pipeline Conference and Exhibition 2019.

Abstract

The present article aims to analyze the directives set forth in the Gás para Crescer
program, launched by the Brazilian Ministry of Mines and Energy in 2016, as well as the
provisions set forth in Decree n° 9,616/2018, and how both of them aim at creating an
effective natural gas market, with a competitive environment in which economic agents
freely negotiate the purchase and sale of gas.

Keywords: Natural Gas. Transportation. Pipelines. Exploration. Production. Gas to Grow


Program.

1. Introduction

The Brazilian Natural Gas Industry, as defined by Law N° 11.909 of March 4 2009
(“Natural Gas Law”), comprises a series of activities destined to the production, distribution
and commercialization of natural gas. Even though a competitive regime has been introduced
in the market, respecting the international good practices, almost every stage of this industry is
characterized by monopolies, such as transportation.

Aiming to broaden the diversity of players in the market in all stages, as well as reduce
expenses and develop the natural gas industry in Brazil, the Ministry of Mines and Energy
(“MME”) launched, in June 2016, the “Programa Gás para Crescer” (Gas to Grow Program
– “The Program”).

In order to ensure the reliability of the natural gas supply and to promote the
competitiveness of the sector, the Federal Government is promoting a set of actions through the
program. Among the main actions are: (i) the review of the legal framework to attract more
investments in the exploration and production of oil and natural gas; (ii) a joint action with the
states to improve the tax structure of the sector and promote greater dynamism and competition
in the market; (iii) the redefinition of the structure of the natural gas industry, by promoting
greater diversity in the number of agents commercializing natural gas, and by encouraging
efficient tariff regulation in transport; (iv) the designing of a new trade arrangement,
______________________________
1
Master of Law, Lawyer, Senior Associate at PINHEIRO NETO ADVOGADOS
2
Undergraduate of Law, Legal Aid at PINHEIRO NETO ADVOGADOS
Rio Pipeline Conference and Exhibition 2019

guaranteeing transparency in price formation and the creation of a competitive market; (v) the
strengthening of the governance of the sector, especially in the coordination of transport
activities, and the opening of markets in the distribution segments; and, finally (vi) the
realigning of the planning of the natural gas sector and electricity sector, in order to allow the
expansion of the pipeline network and a higher possibility of convergence in the use of natural
gas for thermoelectric generation. To do so, the initiative has the assistance of the Energy
Research Company (“EPE”) and the National Agency of Petroleum, Natural Gas and Biofuels
(“ANP”) in the developed work fronts.

To assure a rapid and secure transaction of the Brazilian natural gas industry model, the
strategic guidelines of The Program were defined after the conduction of a Public Consultation
by the MME on the second half of 2016. As a way to comply with such directives in short term,
while a new Gas Bill is processed in Congress, the federal government issued Decree No. 9,616
(“The Decree”) on December 17, 2018, which amended the provisions of Decree No. 7,382,
issued in 2010 to regulate the Gas Law.

Concerning gas transportation, the main proposals of the Program included the
establishment of a Natural Gas Transportation System (“STGN”) and the implementation of an
Entry and Exit system, as adopted by other countries, rather than the Postal System, controlled
by state-owned companies and currently in use in the Brazilian market. In line with The
Program is the Petrobras Divestment Plan, which has been intensified in 2019.

In face of the changes to the regulatory framework of the Brazilian gas industry
mentioned above, the purpose of this paper is to analyze the provisions of The Decree, as well
as further normative acts issued so far by the federal government in the scope of the Gás para
Crescer Program. One shall focus on the innovations related to gas transportation in order to
verify its efficiency and confirm if the Program’s proposals are being duly complied with.

2. Main Innovations of the Decree

The expected liberal reform of the natural gas industry will only be possible through the
deverticalisation of the sector1, being one of the key reasons for the issuance of The Decree.
Thus, its aim is to reduce bottlenecks and limitations regarding the process of granting new
pipelines and allowing for third parties’ access, which may only be possible through the
introduction of several changes to Brazil’s regulatory framework in order to enforce the
directives established by The Program.

It is important to note that this does not exclude tariff regulation, one of the points that
received most attention from The Decree and, according to FREITAS (2008)2, the main
regulatory and fundamental instrument for the natural gas industry, especially for the natural
gas transportation segment.

In order to do so, The Program introduced several changes to the Law and revoked a
considerable amount of articles of Decree 7,382/2010. In order to demonstrate the aims of The
1
BORDALLO, Mirella. Tarifação do Segmento de Transporte de Gás Natural no Brasil: Análise de uma
Simulação. Rio de Janeiro: UFRJ, 2018, p. 29.
2
FREITAS, K. R.. Definição Tarifária como Instrumento Regulatório: precificação do transporte dutoviário
de gás natural no Brasil. Rio de Janeiro: UFRJ/IE. IN: BORDALLO, Mirella. Tarifação do Segmento de
Transporte de Gás Natural no Brasil: Análise de uma Simulação. Rio de Janeiro: UFRJ, 2018, p. 30.

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Decree, one should point out Article 74-A3, which was included to encourage a national
agreement in the gas sector, establishing that the Federal Union, through the EMM and the
ANP, will be responsible for articulating with the States the harmonization and improvement
of gas industry standards including the regulation of the Free Consumer qualification4.

In this regard, it is important to point out that The Decree considered two aspects in
particular which are related to the transportation of natural gas, such as non-discriminatory
access to gas pipelines by third-parties (“Open Access”), as well as the model for reserve
capacity, that was adopted. As a consequence of both aspects, the STGN concept was
introduced as a system shaped by interconnected transport pipelines, as well as other facilities
necessary for its safety under the terms of specific regulation (Article 2, XXXV)5.

Regarding the STGN, the decree also provides that the gas transportation services shall
be offered in the system of Entry and Exit contracting capacity (Article 52-A, §1°)6, where there
will be the possibility of contracting them independently. The transportation tariffs shall be
proposed and structured by the shippers, which will be subject to ANP’s approval, obeying the
criteria previously established by the agency and taking into consideration transfer of revenue
mechanisms between them (Article 507 and Article 52-A, §1°).

The decree also provides that the new modalities of natural gas transportation services
will not cause losses to shippers’ rights resulting from existing contracts on the date of its
publication (Article 70-A)8. This is significant as it assures a high-level of legal certainty and
provides that acquired rights shall not be affected by The Decree, important to the oil and gas
sector as long-term contracts is one of its main features.

It is worth noting that it also provides that shall be ANP’s responsibility to regulate and
establish the incentives in relation to the maximum revenue allowed to transporters, as well as
Open Access to infrastructure (Article 70-A, sole paragraph)9.

Another notable innovation brought by The Decree is the change in the discipline of the
Plano Decenal de Expansão da Malha de Transporte Dutoviário do País (Decennial Plan of
Expansion of the Pipeline Network - “PEMAT”), seeking the reduction of the State’s role in
the planning of the Natural Gas sector and greater preponderance for market information and
investment plans of the transporters themselves.

3
Art. 74-A. The Union, through the Ministry of Mines and Energy and the ANP, will articulate with the
States and the Federal District to harmonize and improve the regulations pertaining to the natural gas
industry, including in relation to the regulation of the free consumer.
4
The Free Consumer qualification currently depends on the specific legislation/regulation of each State, in
accordance with article 2 of ANP’s resolution n°. 51/2011.
5
XXXV - Natural Gas Transportation System - a system formed by interconnected transportation pipelines
and other facilities necessary to maintain its stability, reliability and safety, in accordance with ANP
regulations.
6
§ 1º Natural gas transportation services will be offered under the system of hiring capacity by Entry and
Exit, where Entry and Exit can be contracted independently.
7
Article 50. The tariffs for the transportation of natural gas shall be proposed by the shipper and approved
by the ANP, obeying the criteria previously established.
8
Art. 70-A. The new modalities of natural gas transport service shall not affect the rights of the shippers
resulting from contracts in force on the date of publication of this Decree.
9
Article 70-A. sole paragraph. The regulation of the ANP may establish incentives in relation to the
maximum revenue allowed to transporters, to adjust the existing natural gas transportation service contracts
aiming at organizing the transportation systems to be covered with the provision of new service modalities.

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The decree established that the MME will consider studies of expansion of the country's
pipeline network developed by EPE, where in its preparation it shall consider the investment
plans of the shippers, market information and MME guidelines (Article 6, §110).

Furthermore, a new competence was assigned to the ANP, which is now responsible for
the regulation of the criteria for autonomy and independence concerning the performance of the
natural gas transportation activity, as well as for new and existing shippers. This article aims to
promote free competition, transparency of information, non-discriminatory access to pipelines
and efficient use of infrastructures (Article 4-A)11.

Even though Open Access to production pipelines, natural gas treatment or processing
facilities – as well as LNG terminals and liquefaction and regasification units – is not mandatory
(but regulated by the ANP), refusal of access that qualifies as anti-competitive behavior will
subject the agents to the applicable sanctions, according to the provisions of Law n. 12,529, of
November 30, 2011 (“Law of Defense of Competition”) (Article 62, sole paragraph12 ).

In Article 62-A13, the ANP was given the authority to establish the guidelines for the
joint elaboration of common access codes, based on best international practices, by the holders
of rights or operators of the flow and processing plants, as well as LNG terminals, seeking
global efficiency for the infrastructures and minimization of environmental impacts.

Finally, it is also provided that the ANP will be responsible for defining the procedures
to be adopted for conflict resolution in cases where access negotiations between economic
agents are not successful, focusing on conflict conciliation through mediation and
arbitration(Article 62-A, sole paragraph14).

3. Conclusion

The proposed changes for the transport segment in The Program through The Decree
aim the creation of an effective natural gas market, that is, a competitive environment in which
economic agents freely negotiate the purchase and sale of gas.

Even though the alterations made by The Decree seem extremely efficient and represent
a positive change in the regulatory framework of the natural gas sector in Brazil, any concrete
results will only be possible to perceive once ANP regulates its provisions. In any case, only
10
Article 6. §1o In order to comply with item I of the caput, the Ministry of Mines and Energy will consider
the expansion studies of the country's pipeline network developed by the Energy Research Company (EPE).
11
Article 4-A The ANP, by means of a normative act, will discipline the criteria of autonomy and
independence for the exercise of natural gas transportation activity in relation to the other activities not
included in § 3 of art. 3 of Law 11,909 of 2009, for new and existing shippers, with a view to promoting
free competition, transparency of information, non-discriminatory access to pipelines and efficient use of
infrastructures.
12
Article 62 Sole Paragraph. The refusal of access that establishes anti-competitive behavior will subject
the agents to the applicable sanctions, according to the provisions of Law 12,529 of November 30, 2011.
13
Article 62-A. The ANP, by means of a normative act, will establish the guidelines for the common
elaboration of common access codes, supported by the good international practices, by the agents holding
or operators of outlets, processing and LNG terminals, with a view to overall infrastructure efficiency and
the minimization of environmental impacts.
14
Article 62-A. Sole paragraph. The ANP will define the procedures to be adopted for the resolution of
conflicts between economic agents in cases where access deals are not successful, with an emphasis on
conciliation and arbitration.
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time will tell if the Decree will fulfill its objective or if a new Gas Law will be required to meet
the market’s necessities and expectations.

4. References

BORDALLO, M. Tarifação do Segmento de Transporte de Gás Natural no Brasil: Análise de


uma Simulação. Rio de Janeiro: UFRJ, 2018, p. 29, 2018.

FREITAS, K. R., Definição Tarifária como Instrumento Regulatório: precificação do transporte


dutoviário de gás natural no Brasil. Rio de Janeiro: UFRJ/IE. IN: BORDALLO, Mirella.
Tarifação do Segmento de Transporte de Gás Natural no Brasil: Análise de uma Simulação.
Rio de Janeiro: UFRJ, p. 30, 2018.