New Delhi: Director general of hydrocarbons Atanu Chakraborty is presiding over the transition to a new regulatory regime for India’s hydrocarbon pursuits aimed at wooing investors with liberal terms when the global oil and gas industry is sailing through a painful phase of low prices.
In an interview, Chakraborty said steps will be taken to reduce disputes in the sector and to make the terms for producing unconventional and difficult to extract fuels as investor-friendly as possible. Edited excerpts:
Will India be able to cut import dependence on oil and gas by 10% as planned, considering cooking gas consumption and its import is rising?
The Ujjwala programme (of distributing LPG without upfront payment to the poor) is part of a shift towards using cleaner fuel and improvement in the quality of life, which is bound to happen.
The demand for fuel on account of this has been captured in the consumption growth of fossil fuels. We have to produce that much extra over and above what can be produced on a business as usual scenario.
We are looking at a CAGR (compound annual growth rate) of 5.6%. Year on year growth has been almost 11% in 2014-15.
The planned 10% reduction in import dependence by 2022 is called for to make us reasonably strategically secure. To achieve that, we need to increase acreage (under exploration and production).
We have launched the auction of the discovered small fields this year, after a gap of about six years. In the last two years, fuel price volatility was a reason not to go ahead with the offer of blocks.
The blocks currently on offer are relatively small and have many hydrocarbon discoveries so that investors do not have to spend a lot on exploration. There are other incentives too (such as pricing and marketing freedom and duty free import of equipment).
The idea is to incentivize investments and to add to overall production. Having more players in the market will increase competition and efficiency in the industry.
With global energy firms now cutting back on their investments, the auction of small discovered fields is going to be a test of their appetite for further investments, isn’t it?
Under the new hydrocarbon exploration licensing policy (HELP), pricing and marketing freedom is given to gas produced from deep-water, high pressure and high temperature areas.
Also, the new royalty structure favours investors. Under the revenue share regime, which replaces profit sharing prescribed in the earlier licensing policy, government’s share remains the same (as a percentage of revenue), which gives investors the comfort and incentive to produce more and benefit more in absolute terms.
With stable policies, robust economic growth and improvement of our ranking in ease of doing business, the country risk for energy firms is very low. We have to leverage it to get investments and then hold their hands to ensure that they get access to market quickly. We have also ensured that they get the processing facilities of ONGC and Oil India Ltd on a commercial basis.
There is no gas utilization policy, the entire market for gas is open to producers. People do talk about other incentives in the case of shale gas. Perhaps we will again revisit the regime to see what more can be offered for production of tight oil and shale gas. We need to tap all these resources simultaneously. Increasing productivity and acreage under exploration and getting to difficult reservoirs is broadly the contours of the strategy. Auction of the small discovered field is the first step. The response to the roadshows has been tremendous. As we learn from the process, if we need to tweak our offering, we certainly will do it in a transparent way. Nothing is cast in stone.
What is the strategy on unconventional fuels like gas hydrates and shale gas?
In the east coast, we are working together with Japan and the US Geological Survey to extract gas from gas hydrates. It is still at a research stage and we have to reach a stage where the molecules are stable. While tight oil and shale gas are within the realm of possibility, gas hydrate has to reach a stage when we can think of commercial production.
Considering our reliance on import, we need to be there on all these emerging areas from day one so that we can monetize any upside at the earliest. The gas market in India is rapidly developing with new transmission lines coming up, including for city gas distribution and for fertilizer plants. The share of gas in the national hydrocarbon basket is expected to go up from about 7% now to 25% in some years. In the case of Gujarat, it is already 25%.
What are the tax breaks available for gas producers?
Income-tax exemption no longer exists for gas, but import of equipment enjoys customs duty exemption.
Price volatility in a highly capital intensive and risky sector such as energy, could in no time bankrupt a successful company. Disputes in such a scenario is normal as we have seen in the past. How do you plan to address this?
There would be differences in perception, and hence disputes, in big contracts such as those for natural resources. We have to continuously fine tune the resolution mechanisms.
We have made many corrections in the production sharing regime and we keep improving the existing system. If the contractor wants to produce hydrocarbons, the government will always help them.
Those who are well intentioned, will always do well. We have a large number of fields which have in the last 20 years added to our energy basket. As a regulator, we want every energy company to bring investments and produce more. We will be taking many steps to further improve regulations.
What are the specific areas you would be working on to reduce disputes?
Communicating right at the time of auctioning the fields, the different aspects of executing the contract and the issues where perceptions could differ between parties, can eliminate avoidable disputes. We keep examining the models elsewhere that could help in reducing the time required for dispute resolution.
For example, invoking ‘force majeure’ provisions in a contract is one area around which many disputes take place. Creating awareness about this among investors is important. A lot of education is required on contract management by the parties. In the road shows for the discovered small fields, we tried to educate businesses about these aspects. We are also thinking of having a portal to facilitate communication among stakeholders that will help in reducing disputes.