The move to an open-acreage system from July 1 for auctioning oil and gas exploration blocks in the country is an important step in the ongoing reforms of the industry. The practice hitherto has been for the government to identify acreages with potential reserves for exploitation, which it then puts up for bidding. The NDA government, as part of its efforts to make the sector more attractive for investment, framed the HELP or Hydrocarbon Exploration and Licensing Policy last year. Under the policy, acreages are to be offered on revenue-sharing basis and successful bidders will have marketing and pricing freedom. Simultaneously, the Centre also announced its intention to move to an open-acreage system where an investor can apply to the government to explore any unexplored block. Once the investor identifies the block, it will be put up for auction, with the bidder who identified the block getting a small weightage in the bid evaluation.
This is an important reform measure as prospective investors need not be tied down by the government’s time-table and their choice will also not be restricted to what’s put up for auction. If they identify a field or block that holds promise, they can apply to the government for exploration. With about 80 per cent of the country’s oil needs and half its gas requirements dependent on imports, the need for attracting investment into exploration for hydrocarbons cannot be over-emphasised. The shift to the open-acreage system has to be seen together with the other attractive features of HELP, including pricing and marketing freedom. In a world of falling oil prices and curtailed investments by major oil companies, it is all the more important that India loosens the shackles on the industry if it wants to attract global players.
To its credit, the NDA government has unleashed important reforms in the oil and gas sector, especially in pricing of products and elimination of subsidies. It has carried forward the deregulation of petrol and diesel prices set in motion by the previous government to a stage where we have daily revisions at the pump level. Yet, one important area that needs working on is competition at the retail level. The coordinated price revision by the major retailing companies gives the impression of a cartel-like approach. Similarly, the Centre also needs to look at freeing natural gas pricing completely for all new fields sometime in the not too distant future. It is impossible to expect investors to queue up when gas prices are set through a complex formula that is not based on domestic market realities. As per the formula, producers will get no more than $2.48 per million metric British thermal unit for onshore fields and $5.56 per MMBTU for deepwater fields. These are not prices that will coax investments into the exploration business; to the contrary, they will drive away potential investors.