Government speeds up reforms to boost hydrocarbon sector

Government speeds up reforms to boost hydrocarbon sector

By SHAILENDRA TYAGI | NEW DELHI | 22 November, 2015
Oil rig at Bombay High, located in the Arabian Sea.
To reinvigorate exploration and production of India’s hydrocarbon reserves, the government proposes a new policy which would give marketing and pricing (of natural gas) freedom to the oil and gas companies, an incentive that private operators have been demanding for a long time. Giving such a freedom to oil companies would mean that market forces — rather than government regulated prices — would determine the domestic price of gas. The proposed policy would be driven by revenue sharing model wherein the successful bidder would have to start sharing revenues with the Central government the moment the production starts from the fields. But, given the depressed prices of gas globally due to its overwhelming supplies, the new policy may find only a few takers.  “In the prevailing global scenario, I do not think that any global majors would be interested in exploring India’s hydrocarbon landscape,” says Lydia Powell, senior energy analyst, Observer Research Foundation.
But, Powell hails the revenue sharing model that would form the basis of the new policy. The new model would replace the existing controversial profit-sharing model that allowed operators to recover their exploration and production cost before sharing revenues with the government. The revenue sharing model is an outcome of the great tussle between the CAG and the Reliance industries wherein the national auditor found fault with the profit-sharing model saying that it was devised — with the connivance of some government officials — to dupe the government of its dues. 
But, “the revenue sharing model appears to be a transparent model having less regulatory hurdles and being simple enough to operate and administer,” says R.S. Sharma, former chairman, ONGC, He currently heads the FICCI’s Hydrocarbon Committee. Sharma adds that the newly proposed policy shows the determination of the government to smoothen the irritants present in the existing policy.
Analysts say that the majority of India’s unexplored hydrocarbon reserves lie in deep and ultra-deep water basins which require a lot of risk capital and sophisticated technology to be dug out. 
So, the government seems to be following a realistic approach by offering pricing freedom to the oil companies. “Without remunerative prices, it would be not be viable for any operator to take the exploration and production risks,” says Sharma. He also appreciates the uniform licensing policy of the proposed regime which would give oil and gas companies complete freedom to take out all the hydrocarbon reserves in the allotted reservoir. 
So, if an oil company chances upon natural gas in the oil field allotted to it, the company can now extract that gas without seeking a separate permission for the same.

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