After more than six years under discussion, Bill No. 6,407/13 (the Gas Bill) was approved by the Chamber of Deputies' Mines and Energy Committee on October 23rd. The text amends provisions of Law No. 11,909/09, which establishes the legal framework for the natural gas sector in Brazil.

With this approval, the Gas Bill will now pass on for review by three other committees of the Chamber of Deputies: that of Economic Development, Industry, Trade, and Services; Finance and Taxation; and Constitution and Justice (unless the case is placed under a regime of urgency, and the Bill goes directly for a floor vote). After final approval by the committees, the bill will be submitted to the Senate for review.

The text approved by the Mines and Energy Committee preserved most of the latest amendments to the bill, presented on the same day as the approval. Among the modifications, the exclusion of article 45 from the amended version stands out. The provision provided that the share of natural gas thermoelectric power in Aneel auctions should take into account the cost and availability of fuel traded by natural gas distributors. In the final text, definition of the ceiling prices for thermoelectric energy would be assigned to the Energy Research Company (EPE). According to the deputies, the prior wording of the article was contrary to the main motivation of the Gas Bill, which is the opening of the market.

Among the main modifications brought in by the Gas Bill, the following stand out:

  • The implementation of an entry and exitmodel for contracting transportation capacity . Within the current legal framework, natural gas transportation has transportation models known as the postal or point-to-point model, where the molecule's path from the point of entry into the system to the point of exit is relevant for the gas transportation agreement. In the new model proposed by the Gas Bill (entry and exit model), the physical flow of the gas molecule is delinked from its contractual flow. With this new model, common in the European market, the ease of trading at distant points in the network should generate greater liquidity in the natural gas market.

  • The application of the regime of authorization for the transport and storage of natural gas. Currently, the activity of transportation of natural gas may be carried out pursuant to a concession (for new pipelines) or pursuant to permit (for existing pipelines or those being deployed at the time of enactment of the law). However, due to the bureaucratic difficulties of the concession model, no pipeline has been built or operated pursuant to a concession since the enactment of the current law. Under the new framework intended, the activity of transportation of gas will no longer be carried out pursuant to a concession, only permits. Similarly, underground storage of natural gas will now be performed under the permit regime with a future promulgation of the Gas Bill.

  • The unbundling of the activities of transportation of natural gas from other activities in the industry. In order to curb self dealing and preserve competition in the industry, the Gas Bill contains a provision that prohibits natural gas carriers from directly engaging in competitive activities in the industry (trading, production, liquefying, and importing) or from having direct or indirect ownership interest in companies that perform these activities. The unbundling of market players is already a reality in Brazil in the regulation of the electricity sector.

  • The creation of market areas and reinforcement of the issue of organization of gas transport in a network. Although it no longer provides for the creation of a specific agency to coordinate gas transportation throughout the Brazilian territory (similar to the ONS in the electric energy industry), as had been discussed in the Gás para Crescer [“Gas to Grow”] initiative, the Gas Bill has provisions for market areas, coordinated by a market area manager. The Gas Bill also has self-regulatory mechanisms in order to put into operation the interaction between industry players and transport network control (such as common network codes created by market area managers).

  • Expansion of the list of infrastructure considered essential. In the current legal framework, only transport pipelines are treated as essential facilities. This means that their operators/owners must grant access to these facilities to interested third parties through regulated access. Although it has not proposed regulated access to other infrastructure, the Gas Bill, based on the doctrine of essential facilities (already present in Brazil in industries such as electricity, railways, and telecommunications), provides for negotiated and non-discriminatory access to other structures in the industry (i.e., outflow pipelines, processing units, LNG terminals, and their respective gas pipelines). This change also seeks to increase the competitiveness of the industry to prevent the reserve of the market by the owners of these infrastructure items.

Despite the changes brought in by the Gas Bill for implementing the new model for purchasing transport capacity for entries and exits, article 44 of the Bill itself ensures preservation of the economic balance of the contracts in force at the time of the promulgation of the new law.