The Telegraph
Monday , February 24 , 2014
CIMA Gallary

Oil hunt drill in slow lane

Dogged by delay

New Delhi, Feb. 23: Bidding for oil and gas blocks under the tenth round of the New Exploration Licensing Policy (Nelp X) may be delayed as the oil ministry wants to move cautiously after the Delhi government under Arvind Kejriwal had filed an anti-corruption case against RIL chairman Mukesh Ambani and petroleum minister Veerappa Moily on the gas price issue.

The cabinet was expected to finalise the revenue model for the auctions by the middle of February. The Delhi government is pursuing the case after Kejriwal’s resignation.

Oil ministry officials, troubled by the corruption charges, are unlikely to rush through the Nelp auction. It takes over six to eight weeks for the initial bidding process to be completed, which now seems difficult amidst the unease.

Moreover, with the Election Commission likely to announce the dates for the general elections early next month, the build-up to the bidding such as road shows is likely to be put on the backburner.

The lack of consensus among the various ministries and agencies of the government over the pricing regime has also added to the uncertainty.

During the recent Petrotech conference, the ministry had showcased 46 blocks, which had received clearances and would be put on auction. The plan is to auction 86 blocks under Nelp X.

The ministry is caught between two reports — that of the Rangarajan committee which suggests a shift to revenue sharing and of the Kelkar panel which is pitching for the continuation of the production sharing method.

Petroleum minister M. Veerappa Moily is keen to push the revenue sharing model as it is considered more transparent and performance linked. The finance ministry also favours this model.

However, the Planning Commission has opposed the proposal to change the fiscal regime for auctions, backing its views based on the Kelkar report.

Under the revenue-sharing method, a bidder shall be asked to quote the amount of oil or gas output it is willing to offer to the government from the first day of production. The company offering the highest share will get the block.

According to the Plan panel, this bidding option may not be suitable as the country’s sedimentary basins are poorly explored and their prospects remain uncertain. This is particularly the case for offshore wells. On the other hand, the production sharing method, which guarantee the recovery of all sunk costs, will hold a greater incentive for explorers to undertake additional investment.