Oil and gas exploration policy may be overhauled after elections

India could see a change in the oil and gas auction policy if the BJP comes to power at the Centre. Though, the present auction regime — under production sharing contracts — is among the best globally, it has been marred by controversies, particularly Government interventions.

“We will study the experience of the existing New Exploration Licensing Policy (NELP) model. There are other models, too. We will look at those with an open mind, such as the experience in Brazil. Our intent is to have the most transparent regime in place,” said Narendra Taneja, National Convener, Energy Cell, Bharatiya Janata Party (BJP).

The tenth edition of NELP has been put on hold till after the general elections. The fate of NELP-X also hangs in a balance due to lack of consensus on the kind of fiscal regime (revenue sharing model) it should offer to contractors. The new Government will also need to take a call on the fiscal regime — whether to continue with the current production sharing contracts regime that allows the cost recovery concept —where a contractor first recovers its expenditure before sharing profit with the Government, or go for a production-linked system. The latter is said to be more transparent and will have less intervention in routine exploration activities.

The cost recovery regime has been at the root of the problem so far in oil and gas exploration activities, as it requires a close scrutiny of costs. It incentivises the contractor to book as costs all expenses that do not reflect the true economic cost incurred by them.

Taneja said there was a need to view deepwater and shallow water exploration activities independently. “While we want to incentivise the sector, let me clarify, incentives do not mean just tax benefits,” he said, adding “what has been seen so far is that problems arise in implementation. So, we have to see how to cut red-tapism.”

A shift in regime may not directly result in more revenues for the Government, but it will ensure that as the contractor earns more, the Government gets progressively higher revenue. Besides, it will also safeguard the Government interest in case of a windfall arising from a price surge or a surprise geological find.

As part of its energy policy, the BJP also intends to encourage both private and public sectors in their hunt for assets abroad.

“We will put our weight behind both public and private sectors. There will be no discrimination among the participants,” he said.

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