Oil & Gas auction to become reality by 2016
Oil Minister Dharmendra Pradhan said that the government hopes to conclude the new policy for the sale of oil and gas blocks by FY 2016. His declaration came a day after the oil ministry announced that a "new fiscal and contractual regime for award of hydrocarbon acreages" was needed in order to encourage investor interest in oil and gas research by simplifying the rules.
Dharmendra Pradhan, the oil minister, said he wanted to overhaul the research policy to draw investors, encourage energy output. Pradhan directed towards the replacement of the archaic 'production sharing regime'. The new system will make government intervention minimal. Top precedence will be directed towards monetization of marginal and small fields under ONGC with help from private investment and technology.
The previous production-sharing contract (PSC) was a cumbersome one, and that garnered more controversies than output. The PSC approach meant the government had to be involved in cost of exploration which led to delays and disputes. Moreover, the companies needed separate licences to exploit every different hydrocarbon resource that was present in any given field, making the process an expensive and tedious one.
The previous PSC model is the reason for conflict between the government and Reliance Industries over the amount Reliance had invested and the recovery amount authorised to it before giving the government the profit share. The case is in arbitration till now.
Cairn India CEO Mayank Ashar said the new marginal field policy was set to spur investments. Moreover, this policy will put an end to mistrust as the government will be collecting "a share of topline revenues generated from gas sales, and companies do not have to haggle about what they invested." Government too will not have to worry if it's been cheated of revenues.
The government is planning to auction state-owned ONGC and Oil India's 69 oil and gas fields to private companies on a fresh income sharing model. This will provide the bidders "pricing and marketing freedom." The government will permit firms to sell oil from these fields at market price and without any stipulation on who they merchandise the oil to.
The 69 small and marginal fields that will be auctioned contain 89 million tonnes of oil and gas resources that could bring in a revenue worth Rs.70,000 crore at current rates.
The move to auction the 69 marginal oilfields came under heavy attack from the Centre of Indian Trade Unions(CITU) attacking the government of "doling-out" national assets to private businesses. CITU said the current model, which will later be extended to major fields was heavily loaded to favour those in private sector. They said this would have an adverse impact on prices of petroleum products.
In order to counter the current rates of natural gas which are considered "too low to support exploration and production cost" government proposed to "free natural gas pricing". The government also proposed to substitute the controversial Production Sharing Contract (PSC) with more simple revenue-sharing management for all prospective field auctions. The ministry invited comments from stakeholders in this regard.
