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Founder of Vedanta Group and contractor of one of the most prolific onland oil asset in India, Anil Agarwal, believes that there are two things that will ensure investments in the hydrocarbon sector: ‘fair price’ for the fuel and clarity on profit sharing.
“The government should keep things simple. In the previous round of auctions for blocks some of the players committed up to 90 per cent of their revenues to the government. This will not bring investments. The government should cap the revenue share to 40 per cent to ensure that the sector can thrive and people can remain incentivised,” Agarwal told BusinessLine .
Need for clarity Agarwal’s suggestion for a cap is debatable as questions crop up such as how will the percentage be derived, who decides it, and on what basis is it decided?
But, he is of the view that clarity is needed on the matter as it is the explorer who is taking all the risks. When a dry well is struck it is completely on the books of the contractor and not the government’s, while when the production starts, the revenues have to be shared.
“The government’s intention should only be to ensure that production goes up and the environment is not disturbed. India should be more liberal so more people can invest,” he said, adding that, “It should be as simple as allowing anyone to explore and drill a piece of land and then collecting revenues when the extractible is sold in the market. Regulations should be only on environmental norms.”
Domestic production Agarwal, who was among the oil corporate honchos who were present at Prime Minister Narendra Modi’s meeting on Monday said, “The Prime Minister recognises the fact that only 15 per cent of India’s oil demand is met through domestic production, the rest is through imports.”
But, to increase domestic output conducive environment needs to be created, Agarwal said, adding that “a contractor should get fair price for the produce.
“For example: I am selling Barmer crude to domestic players at 15 per cent discount of Brent. Why will anyone want to produce in India if they are forced to sell at a discount? The government has nothing to do with micro management.”
“India has 70 billion barrels of crude and we just need 2 billion barrels of oil every year.
“The domestic reserves alone can meet the oil demand for 35 years.
“India imports crude at around $56 a barrel. There is a windfall saving that the country gets by buying crude from us. But, the government has to make policies to incentivise this. Foreign players take advantage of democratic policies to discourage oil production,” Agarwal added.
Barmer plans On what are his plans for Barmer, Rajasthan oil field, now that there is a clarity on extension of production sharing contract (which is expiring in 2020), he said: “We have to spend ₹30,000 crore to double production from the Barmer field. We aim to produce nearly 50 per cent of all domestic oil in the country.
Our average cost of production will remain $6-7 per barrel with 80 per cent of the earnings going to the government. But, to do this, I just want to get my fair price.”
Since he is known as commodities man, where does he see commodities prices heading? Agarwal said, “I don’t see a downside in commodity prices. I expect a 15 per cent upside in commodity prices, including crude oil. This is because new wells are not being opened.”
Agarwal said that “Mineral production is expected to grow. Exploration is under way at the gold mine. But, the current Mineral Auction Policy proposed, will not be successful. The rules need to be simplified for mineral exploration.”
Anglo American On his latest increase in stake in Anglo American, Agarwal said: “I have invested in Anglo American in my personal capacity. The company is the largest diamond producer in the world. It produces coal, nickel and iron ore.
“India currently doesn’t have a mining culture, and I want to develop this. We want to bring Anglo American to India to develop their business here.”
Other initiatives What next is on cards for Anil Agarwal, and he says, “I have pledged 75 per cent of my wealth to Indians for building schools, universities and other activities.
“We produce copper, aluminium, oil and gas and nothing can be used without processing.
“For this, we have committed a $1-billion fund to encourage entrepreneurs in India.
“If you get a bank to fund you, Vedanta will take care of the equity part.”
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