The Hindu Business Line : Exploration bids: Tighter norms likely to protect Govt share

New Delhi June 24 A drastic change in the fiscal package criteria for the coming oil and gas exploration licensing round could be in the offing. This would minimise any chances of companies playing with the Government share of profit during various periods of production.

Learning from experience, the Petroleum Ministry is planning changes so that when bids are put in by prospective contractors, the Government share of profit petroleum would be calculated against two tranches of pre-fixed formula as opposed to the six-tranche mechanism adopted in the previous New Exploration Licensing Policy (NELP) round.

The Government share of profit petroleum is to be calculated as a ratio of net revenue accruing out of the investment made.

The Ministry has sought the views of the companies interested in NELP-VII on the proposed changes.

While the minimum and maximum share for the Government would be calculated as per the pre-fixed formula of revenue coming out of the amount of investment made in the block, the remaining shares of profit petroleum falling between the prescribed range are proposed to be worked out on a pro rata basis. This would come with a `positive' slope depending upon the exact investment multiple achieved in each of the preceding year.

It implies that profit share would be lower at the lower end of investment and higher at the higher end.

Industry experts told Business Line that this would help avoid situations like the ones that emerged in NELP-VI.

The round saw companies offering "extreme financial packages" that showed a higher share for the Government in the initial years of production and a lower share for the later years of production. Almost 19 bids are under question. Apart from the fiscal package, NELP-VII is also likely to see a new category of blocks - small size onland - within well-explored basins.

Bids for this category will be evaluated on the basis of minimum work programme and fiscal package alone, thereby making the entry of smaller companies and entrepreneurs possible.

For deepwater blocks, the Ministry is considering a new sub-criterion of `consortium/partnership' within the technical capability criteria by assigning 10 points each for consortia of Indian and foreign companies bidding together. The points would be awarded provided at least one of the companies acting as the operator has experience of deepwater production beyond a prescribed limit.

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