New Delhi: To arrest the rapidly diminishing interest in the hydrocarbon sector, India may call for the 10th round of new exploration and licencing policy (Nelp) this year when exploration blocks will be auctioned only after a panel headed by C. Rangarajan presents a report on improving the existing mechanism.
“To improve the investment regime, we will put a more investor-friendly system. There have been complaints. We will try to minimize them. After that we will go for the 10th Nelp rounds,” petroleum minister S. Jaipal Reddy told reporters on Sunday.
Nelp was approved by the government in 1997—it kicked off in January 1999—in an effort to boost hydrocarbon exploration in the country. Under Nelp, the government allocates the rights to explore blocks through a bidding process and has done this in nine phases so far for 249 blocks.
The ninth round of auctions of hydrocarbon exploration blocks turned out to be a low-key affair; while one block failed to elicit a bid in March last year, 33 blocks got 74 bids, mostly from state-owned companies such as Oil and Natural Gas Corp. Ltd.
“We have referred the issue to a committee headed by C. Rangarajan. He is reviewing the existing PSCs (production-sharing contracts). That report is to be given in the next few weeks. We will take a view and then take it to the cabinet committee on economic affairs and after the cabinet’s decision the 10th Nelp round will be called. It maybe in this calendar year. We plan to initiate it within that time frame,” Reddy said.
Rangarajan, chairman of Prime Minister’s Economic Advisory Council, is expected to submit his report before 31 October. The panel is trying to find answers to the questions such as profit-share between the investor and the government and effective supervision of projects.
“We are in favour of a production-linked payment mechanism rather than the cost-recovery mechanism,” said a government official, requesting anonymity.
While India’s oil and gas sector attracted interest from investors such as London-based BP Plc and Vedanta Resources Plc, there have been concerns on diminishing interest in the area, prompted largely by the policy regime.
Mint reported on 11 July about the petroleum ministry warning the Prime Minister’s Office (PMO) that the “non-clearance” of blocks awarded under Nelp “may lead to an exodus of foreign firms who were brought with assurance of conducive investment environment.”
Petroleum secretary G.C. Chaturvedi said a committee headed by cabinet secretary has been set up to expedite the clearances.
Countries such as India that are dependent on imports to meet oil needs are particularly vulnerable to supply shocks and need to promote domestic exploration efforts.
India, the world’s fourth largest energy-consuming nation, imports 80% of its crude oil and 25% of its natural gas requirements. The country trails the US, China and Russia accounting for 4.4% of global energy consumption. India’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today, to around 1,500 mtoe, according to India’s oil ministry’s estimates.
PricewaterhouseCoopers said in a report released last week that the growing dependence on imports for primary energy leaves India vulnerable to external shocks. India’s oil import bill as a percentage of its gross domestic product has grown from an average 3.7% for 1990-2010 to 5.9% in 2011-12. “This calls for more intense exploration activities to unlock the untapped potential in the oil and gas sector in India,” the report said.