Government to offer 56 oil and gas blocks under NELP-X

NEW DELHI: The government plans to offer exploration blocks for bidding after a long delay, with a new revenue sharing model that will end the controversial system in which companies first recover their costs before the state gets revenue. The oil ministry will profile at least 56 oil and gas blocks, which will be offered in the 10th round of bidding next week at the Petrotech conference, oil secretary Vivek Rae said.

Rae also said the ministry was firm on its policy to curb diversion of cooking gas subsidies and it is not considering any proposal to raise the annual limit of subsidised cylinders from nine to 12.

“There is no proposal in my ministry. I am not aware if there is any decision at the political level,” he told reporters on the sidelines of an industry meeting. Finance minister P Chidambaram had said last week that chief ministers of several states were demanding raising quota of subsidised cylinders and the government would consider it.

The government had capped the annual supply of subsidised cooking gas cylinders to six per household in September 2012 when Jaipal Reddy was the oil minister. Later, oil minister Veerappa Moily had raised the quota to nine cylinders per household in January last year.

Commenting on the 10th auction round of exploration blocks, Rae said that the bids would be invited in February.

“We are proposing to move to revenue-sharing model from the current production-sharing scheme. There will be no profit petroleum, no cost recovery, no investment multiple,” Rae said. The cost-recovery provision is one of the key features of the existing oil and gas contracts, which allow an explorer to first recover its entire expenditure in developing oil and gas fields before sharing profits with the government.

The Comptroller and Auditor General (CAG) of India criticised this provision in 2011, saying this offered little incentives for the operator to keep costs low. ET reported on January 1 that the oil ministry has circulated a Cabinet note to replace existing new exploration licensing policy (NELP) with the uniform licensing policy (ULP) with extended tax holidays, zero royalty payment and longer contract tenure to attract investors.

The new exploration regime proposes to discard the controversial features of the old system of allowing the explorer to first recover its entire expenditure in developing oil and gas fields before sharing profits with the government.

The proposed model, based on recommendations of the Rangarajan committee report, also aims to avoid disputes with explorers such as those with Reliance Industries over inflation of costs and allegations of gas hoarding that vitiated the investment climate, oil ministry officials said.

Private oil companies are disappointed by the proposal to remove the lucrative cost-recovery provision. “India is not highly prospective like Gulf countries. Therefore, removing the cost-recovery element in future contracts would dissuade investments in the sector,” said a private operator and a member of the Association of Oil & Gas Operators (AOGO) requesting anonymity.

The association has over two dozens members including ONGC, Cairn India, RIL, BP, BG, Eni and BHP.