Oil Ministry to overhaul exploration policy: Dharmendra Pradhan

Oil Minister Dharmendra Pradhan plans to overhaul the exploration policy to attract investors.

By: Press Trust of India | New Delhi | Published:October 26, 2014 2:55 pm

After unveiling major reforms since Bharatiya Janata Party’s storming to power, Oil Minister Dharmendra Pradhan plans to overhaul the exploration policy to attract investors, spur energy output and revive the economy.

In parallel, the Ministry is setting stiff targets for state explorers like ONGC to reverse the declining trend in oil and gas output in recent years as it looks to cut on import dependence.

Pradhan, 45, wants to replace the 15-year old production sharing regime, which has produced more controversies and less oil and gas. Only three out of the 252 blocks given out have come to production stage. The new regime aims to inspire confidence in investors and require minimal government intervention.

“We want to increase ease of doing business in India. Bottlenecks have to be removed, red-tapism cut and investors given confidence so that they can come and invest in oil and gas exploration and production,” he told PTI here.

The focus is on raising domestic oil and gas production beginning with state explorers ONGC and Oil India, who had in the immediate past not met their own stated targets. They have been given a 10 per cent improvement target so as to cut imports, he said.

Top most on priority is monetisation of small and marginal fields lying with ONGC with help of private investment as well as technology, he said.

Natural gas pipeline network in the country will be doubled to 30,000 kilometres by 2019 to expand the reach of environment-friendly fuel. Also, state refineries are being asked to improve efficiencies to become globally competitive even as fuel retailing is opened up for competition.

“We have set priorities and targets at every level – upstream, midstream and downstream. Efficiencies have to improve. Prime Minister Narendra Modi has showed how the same set of people under the same system can deliver better results,” he said.

While the house is set in order, Pradhan wants India, which spent USD 143 billion to import crude oil last year, to diversify its purchases to guard against geopolitical risks in some of the world’s biggest suppliers.

“I met officials from the US recently and asked them to allow oil exports to India. We are keen to import oil from US, which currently does not allow oil exports. We will look at Russia and Latin America too,” he said.

Global oil prices slumping by 25 per cent from about USD 115 for a barrel in June to USD 85 or so, last week emboldened the government to press ahead with politically risky decisions of scrapping controls on diesel prices and raising natural gas tariff for the first time in four years, in a bid to lure investors and revive the economy.

“I consider these as big ticket reforms,” Pradhan said, adding that the government has also announced a 10-point reform of PSC for early monetisation of fields.

For the next licensing round, the experience of nine rounds of New Exploration Licensing Policy (NELP) where government entered into Production Sharing Contract (PSC) with explorers, like Reliance Industries, will be used.

The PSC regime, where explorer recovers all his cost before sharing profits with the government, has been criticised by the CAG as it incentivises cost escalation and requires micro-monitoring by the government, leading to disputes, red-tapism and delays.

“We have before us the experience of nine previous rounds… only 2-3 fields have reached production stage. This is big evidence before us. We want to take a holistic decision,” Pradhan said.

Three committees headed by C Rangarajan, Vijay Kelkar and Ashok Chawla have given varied recommendations on future exploration contracts – from retaining current system to moving to revenue sharing model where companies will upfront bid the amount of oil and gas they will give to the government.

“We are holding wider consultations with stakeholders. The three committee reports are with us. Also, we are looking at practices globally. We will go for NELP-X (auction round) only after we have put in place a policy which is investor-friendly and helps in achieving our objective of raising oil and gas output,” he said.

Gas price hike and diesel deregulation will help address some of the concerns investors had about the energy sector in the country.

State refiners sold diesel, kerosene and domestic LPG at rates below cost to help rein in inflation. They were partially compensated with cash from the budget, while explorers like ONGC gave them discounts on crude oil.

Brent crude in London, a benchmark for half the world’s oil, including India’s, is trading near the lowest level since November 2010.

The decline helped wipe out the difference between real price and the cost. The drop provided the government a window to free the fuel of controls, resulting in the first price cut since January 2009.

The new gas tariff will be USD 5.61 per million British thermal units from November 1, up from USD 4.2, and will be reviewed on a half-yearly basis.

Pradhan said ending price controls will bring in competition from private retailers, helping consumers.

 

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