The Telegraph
Monday , October 15 , 2012
Since 1st March, 1999
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Fresh round of oil hunt on way

New Delhi, Oct. 14: The government plans to initiate the process of bidding for oil and gas blocks — the tenth such exercise — by the end of this year, and plans are afoot to have more investor friendly rules.

“Before the next round (of exploration licensing), we would like to put in place a more investor friendly regime both for investment and from the point of view of pricing,” petroleum minister S. Jaipal Reddy said at an oil conference today.

The previous nine bidding rounds under the New Exploration Licensing Policy (Nelp) have been lacklustre with global firms staying away because of issues such as tight regulations on pricing as well as delays in getting approvals.

Oil secretary G. C. Chaturvedi said the oil ministry would now obtain approvals from various ministries, including environment and defence, before the blocks went under the hammer.

He said the contractors of about a dozen blocks won from the previous rounds were still awaiting defence approvals for exploration.

Mining major BHP Billiton has said offshore exploration has been hit over delays in getting permits from the defence ministry.

“A committee headed by the cabinet secretary and comprising officials of ministries such as defence and environment has been set up to give clearance for exploration blocks,” Chaturvedi said.

Meanwhile, a committee under C. Rangarajan is deliberating on the terms of the contract with the winning bidders.

“We have referred the present production sharing contract (PSC), which has the cost-recovery mechanism, to a committee headed by C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council,” Reddy said.

The panel is due to give its recommendations in the next few weeks.

Reddy said the committee was expected to submit recommendations on revamping the exploration policy as well as the terms of contracts signed by companies.

It may suggest “alternate models” in the next few weeks, which will be taken to the cabinet for approval. Once the cabinet clears the changes, the 10th round of Nelp will be launched.

“Our endeavour is to initiate the 10th round in the current calendar year,” he said.

The Rangarajan committee has also been asked to suggest “structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas, and for monitoring actual price fixation”.

Exploration firms have raised concerns about the lack of pricing and marketing freedom as well as fiscal stability. The government not only controls natural gas price but also nominates buyers and the amount to be sold.

Reddy said he hoped the new policy would help “avoid or minimise” the problems being faced by investors.

The current production sharing contracts (PSCs), signed under the exploration policy of 1999, require explorers to recover all their capital and operating expenditures from oil and gas revenues before sharing profits with the government.

The cost sharing model has been criticised by the Comptroller and Auditor General as it encourages explorers to delay the government’s share of profit.

The panel may suggest moving to a production-linked payment regime where explorers may be asked to bid for a percentage of output they will share with the government. The firm offering the maximum will win a block or an area.

“If the PSC is to be improved or replaced, the Union cabinet has to clear it,” Reddy said.

R.P.N. Singh, the minister of state for petroleum and natural gas, has informed the Lok Sabha that Nelp has attracted about $20-billion investments.

In the ninth bidding round, 74 bids for 33 blocks were received from 36 companies. The government has awarded 254 blocks for exploration in 9 rounds of auctions.