On the eve of the end of the government and with frustrated expectations regarding the advance of Bill No. 6,407/2013 (the Gas Bill), President Michel Temer enacted on December 17, Decree No. 9,616 in order to amend Decree No. 7,382/2010, which regulated Chapters I to V and VIII of the Gas Law.

The measure came as a result of the many debates held between industry and government agents and after various initiatives developed over the last few years. In general terms, the amendments envisaged in the decree are in line with the provisions of the Gas Bill and the proposals presented as part of the Gas to Grow (Gás para Crescer) initiative, thus laying the general foundations for structuring the natural gas industry and leaving the regulation of specific topics to the National Petroleum, Natural Gas, and Biofuels Agency (ANP).

The decree gives continuity to the strategic guidelines for the design of the natural gas market published by the National Council of Energy Policy (CNPE) in 2016 and seeks to meet the expectations of the market players. Its main objective was to flexibilize regulatory and legal criteria and procedures related to the natural gas industry, in addition to granting the ANP greater regulatory autonomy so that the changes necessary for the development of the natural gas industry may be implemented continuously.

With the new decree, gas pipelines that do not fit into the definitions of the modes of disposal, transportation, or transfers may be classified according to the criteria established by the ANP.

The regulatory agency is in charge of establishing the criteria of autonomy and independence in the exercise of the transport activity for both new transporters and for existing transporters. The objective is to promote free competition, transparency of information, non-discriminatory access to pipelines, and efficient use of facilities.

Criteria and procedures for the expansion (extension and construction) of Brazil's pipeline network were made more flexible. Some provisions in the public call notice and the bidding process were repealed. Thus, the provision that established that the criterion for the selection of the winning bid would be the lowest annual revenue was deleted, which, in turn, would correspond to the annual amount to be received by the carrier for the provision of the transportation service. The provisions dealing with the reference pipeline, used to define maximum annual tariffs and revenues, considered for purposes of public call for bids and concession bids, were also repealed.

Specifically regarding the bidding document, the decree revoked provisions regarding the mandatory items that should accompany the technical proposal, namely: preliminary pipeline design; description of the equipment to be incorporated into the infrastructure; material specification; local content ratio; list of shippers who signed a commitment agreement in the public call process; among others.

With respect to third-party access to transportation pipelines, the decree provides that the tariffs for the transport activity are to be proposed by the carriers and approved by the ANP in accordance with the criteria established by the agency. The previous wording stated that the ANP would establish both the criteria for the definition of the amounts due from third parties interested in accessing the pipeline as well as the form of payment and its allocation.

One of the most significant changes brought by the decree, however, was the provision regarding natural gas transportation systems, defined as those formed "by interconnected transmission pipelines and other facilities necessary to maintain their stability, reliability, and safety, in accordance with the ANP’s regulations", as defined in the Gas Bill. Again, the ANP was responsible for the specific regulations regarding the transportation system. The transportation services will be offered in the entry-exit model, whereby entry and exit capacities may be contracted for independently. There was great expectation in the industry regarding the treatment of the topic since the beginning of the debates, in the middle of 2016.

The decree expressly stipulates that the new entry-exit model for natural gas transportation services will not affect the rights of carriers with contracts currently in force. In addition, the ANP may establish "incentives" in relation to the maximum revenue allowed for transporters so as to adjust current transportation contracts to the new modality.

Regarding access to essential infrastructure (gas pipelines, natural gas processing and treatment units, and LNG liquefaction and regasification terminals), a provision was included in the decree to provide that refusal of access that constitutes anti-competitive behavior will subject the agent to the sanctions applicable in accordance with Law No. 15,299/2011 (the Cade Law). The ANP was received the attribution to establish guidelines for facility owners and operators in order to develop common access codes in conjunction with the agency.

With respect to the treatment of free consumers, one of the most sensitive issues in the natural gas industry today, the decree merely stated that "the Federal Government, through the Ministry of Mines and Energy and the ANP, shall liaise with the States and with the Federal District for the harmonization and improvement of standards related to the natural gas industry, including in relation to regulations with respect to free consumers." The wording suggests that an additional effort will be required by the Federal Government in order to ensure free consumer regulations in the states.

The publication of the decree brings about new momentum for the industry, which expects intense regulatory activity from the ANP in the coming months in order to implement the measures necessary to put the changes into effect.