Helpless NELP

It appears to be a curious paradox. Global prices of crude oil and natural gas are rising by the day and predictions are that they will go only one way — upwards — in the days to come. Experts and analysts constantly remind us that crude oil reserves are finite and we are depleting reserves faster than we are adding to them. And India is a rapidly growing market for energy. Yet, the 34 oil exploration blocks put up for auction under Round IX of the New Exploration Licensing Policy (NELP) were largely ignored by the big, multinational players. This was the case in the previous round of NELP as well; in fact, coming to think of it, NELP has never attracted the serious attention of the big oil companies in the last decade of its existence. Why this paradox? The answer is simple: the big oil companies do not see much promise in the blocks that India puts on auction, especially in relation to other similar opportunities available elsewhere in the world. A Shell or a BP would probably risk its money in more promising locations such as the Gulf of Mexico, North-west Shelf in Australia or off the Brazilian coast, or even in politically dicey North Africa, where the prospects of returns on every dollar spent are higher than in India. And this is after accounting for the friendly terms of investment under NELP.

In addition to the relatively unattractive prospects in our blocks — which is the truth, no matter how much our officials may want to differ — other hurdles such as unstable policies, the tendency to change the rules of engagement half way into the game to favour one or the other party, and episodes such as the logjam over the Cairn-Vedanta deal clearance, obviously put off even those companies that are hesitating on the sidelines. The latest Budget has done away with the seven-year tax holiday on profits earned from production of oil and gas from the NELP blocks to be awarded in future. The proposal will only put the country at a disadvantage as even now there is little that NELP offers over and above what other countries do when they auction their blocks.

What all this means is that India will have to depend more on its domestic exploration and production companies such as ONGC, OIL and the other government refining and marketing companies along with the likes of Reliance Industries and Essar from the private sector to explore its territory for hydrocarbons. This is pretty much what has been happening anyway in the last few rounds of NELP where these companies have bagged a majority of the blocks on offer. The challenge for the government will be to create an enabling financial and regulatory environment to help these companies do the job efficiently and effectively. It can begin by cleaning up the mess in our fuel-pricing policy.

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