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Dwindling Attraction

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[The results of the recently concluded ninth round of National Exploration and Licensing Policy (Nelp) auction is another testimony that the policies for India's oil and gas sector need serious overhaul and alignment with internal standards. The auction was largely ignored by the multinational players — of the 74 bids placed, 33 were from state-owned firms, including ONGC, with the balance from private sector companies. The response to Nelp has slowed over the years. The first five rounds of Nelp attracted total investments of $7 billion, which by end of three more rounds went up to just $11 billion. In the nine rounds of Nelp till date (since 1999), out of the 268 blocks offered, more than 50 per cent were taken by state-owned companies. Rest were picked up by small global oil companies or subsidiaries of oil majors. And that too as joint venture partners of an Indian company. Besides, there are exploration challenges in India. In an estimated area of 3.14 million sq. km, comprising 26 sedimentary basins, there are limitations to hydrocarbon reserves. But, according to officials in foreign oil companies, the worst dampener is the lack of confidence on the independence of the regulator, Director General of Hydrocarbons (DGH) — a fact that senior officials in the petroleum ministry also acknowledge. Experts say the government's interference in the functioning of DGH has upset many foreign players. Another reason for the lukewarm response to Nelp is the government's reluctance to offer ‘speculative survey' that is sponsored by a consortium of global oil majors. DGH officials, however, think the survey prepared by them is far superior than the one prepared by foreign companies. DGH officials reckon that the report about possible hydrocarbon reserves prepared by Indian agencies is based on indepth research, while those prepared by outside agencies are narrowly focused on the product availability. But if the speculative survey prepared by an outside agency is acceptable globally and meets international standards, why is it not acceptable to DGH? Planning Commission estimates that by 2015, 100 per cent of the Indian sedimentary basin area is likely to be under exploration. The DGH's obduracy on speculative survey will not help that.  There is an absolute need for setting up a technical committee within or outside the DGH. A tax holiday and clarity in policy guidelines are needed for companies that want to undertake exploration-related survey of the blocks. Interestingly, there is scarcity of technical manpower in India to undertake the survey as per international norms. No institute has yet focused on this subject, nor has there been any effort to bring in private institutions to work with the research and development institutes sponsored by big oil majors. Another important move that the government needs to make is to bring all energy-related departments within different ministries under one centralised unit. This unit should constantly assess the energy requirement of the country, not only for the immediate future, but also for the next 50 years. If the government is keen to realise the objective of Nelp as conceived in the 1990s, which is to address the increasing demand-supply gap in energy, it has to remove the red tape on tax, pricing, and mergers and acquisitions. It is a high-risk business after all. (This story was published in Businessworld Issue Dated 11-04-2011)