For a country which is largely dependent on imported oil and gas, India is remarkably sanguine—reckless is a better word—about hydrocarbon exploration in its territory. As it is, foreign investors are wary of coming to Indian shores even in relatively low-risk businesses. When it comes to energy, wooing foreign investors requires extra sweeteners. Forget that: the country is virtually driving them away.
As reported in Mint on Wednesday, 46 blocks under the New Exploration and Licensing Policy are yet to get clearances —largely from the ministry of defence. Six other blocks lack other clearances (such as those from state governments). This is hardly good news for a sector that is not only capital-intensive but also requires technology that India does not possess. So far, an investment of $11.8 billion has been made in these blocks.
Security clearances are only the latest of problems in this area. Cost recovery is another point of discontent. In any business—especially in a high-risk one as oil and gas exploration—investors have to bear some risks. So, if exploration yields no hydrocarbon finds, one has to bear losses as bad luck. But in case of success, surely some level of cost recovery is only fair. This is an issue that has not been resolved. The government, and its apologists, will always say that as a sovereign it is entitled to its share of revenue from such discoveries. That is true, but there is one issue: it is foreign investors who bring the technology needed to explore difficult geological formations where hydrocarbons are trapped. The government has to offer some incentives to make things move.
Then, there are other issues which defy easy resolution. For example, some of the blocks awarded lie in areas that are claimed/disputed by Bangladesh, Myanmar and India. Here again, it was important that such disputes be resolved before farming out of these areas for exploration, etc.
As the story reports, however, far from wooing investors, there is danger now that they may be scared away. The ministry of petroleum, in a presentation earlier this month to the principal secretary to the Prime Minister, has said that non-clearance will adversely affect future investment prospects and, at a later stage, may even lead to litigation and damage claims.
These problems don’t require “capitulation” before these investors but a clear-headed appreciation of risks and challenges involved in exploration. A policy designed while keeping these issues in mind will serve the country well.
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