The Hindu Business Line : The NELP gusher

Going by the tremendous response that it has generated — 165 bids for 52 blocks, which is an average of three for every one on offer — it would be tempting to label the sixth round of bidding under the New Exploration Licensing Policy (NELP-VI) a grand success. But before doing so a couple of points need to be considered. First, more than half the bids have come from Indian companies, 45 of them from Oil and Natural Gas Corporation (ONGC). Second, none of the Big Oil members — ExxonMobil, ChevronTexaco, Royal Dutch/Shell and ConocoPhillips — has thought it worth its while to bid, either on its own or jointly with Indian companies, for what was arguably the largest number of exploratory blocks on offer in recent times anywhere in the world. And this, coming at a time when oil prices are high and the oil biggies are investing big bucks in exploring in frontier areas, is surprising indeed. Perhaps, the Directorate-General of Hydrocarbons (DGH) should inquire why the majors are not interested.

That said, it has to be recognised that the response to the latest bidding round is unprecedented and the credit for this should be laid at the doorsteps of the likes of Cairn Energy and Reliance Industries which have explored successfully in difficult blocks that others had given up on, as in the case of the former's Rajasthan discovery. The relatively high crude oil prices compared to the previous rounds have also made exploration attractive in frontier blocks where development and extraction costs are higher. Credit is also due to the NELP's transparent bidding and allotment process, unlike in the past when blocks were assigned on a discretionary basis. It would be premature to talk about the investment that could flow in from NELP-VI as there is a long way to go yet and much also hinges on whether the successful bidders indeed strike oil or gas in any of these blocks.

Even as the DGH gets down to assessing the bids and identifying the successful bidders in the latest round, there are a couple of things the Government ought to do. First, it must put in place regulators for the upstream and downstream sectors of the oil industry. The DGH is the de facto regulator for the upstream sector but lacks the statutory powers that can only flow from it being formally designated as the official regulator. Instances such as the premature announcements of oil and gas finds by a couple of players recently clearly indicate the need for a regulator with teeth for the upstream sector. As the activity increases in future, the need will be felt all the more for a calming regulatory hand. Second, the Government has to gradually clear up the mess in the industry in terms of subsidies and under-recovery sharing and make the oil sector market driven. It is indeed futile to expect multinational oil companies, which have opportunities elsewhere, to invest in a country where they cannot be sure of a proper return on their investment.

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