Nelp-VII may fade into the distance

NEW DELHI: The seventh round of the country���s mega oil hunt may turn out to be still-born, with increasing chances of it getting delayed indefinitely. Apprehending poor investor response following the proposed withdrawal of the seven-year income tax holiday in exploration and production (E&P) of oil & gas, the petroleum ministry is considering postponing or even scrapping the seventh round of the New Exploration & Licensing Policy (Nelp-VII). The petroleum ministry ��� which has highlighted tax exemption as one of the major incentives for investors in its various roadshows ��� is still in a fix after the Budget 2008 proposal.

It was already forced to postpone the bid deadline from April 11 to April 25, pending clarification from the finance ministry. ���After initial enthusiasm regarding Nelp-VII, investors��� response is waning due to the Budget proposal. The petroleum ministry is yet to receive any clarification regarding the continuation of the I-T exemption so far followed under the Nelp regime. There are views in the ministry to postpone or scrap the Nelp-VII,��� a source in the government said.

A fiscal regime should not be changed mid-way, a petroleum ministry official said, adding, ���The finmin neither consulted us (the oil ministry) nor took the Cabinet into confidence before proposing withdrawal of the tax benefit.��� The Budget memorandum, which explains provisions of the Finance Bill, 2008, and notes on clauses of the bill, suggest the tax holiday may not be available on commercial production of natural gas since the term ���mineral oil��� does not include petroleum and natural gas, unlike in other sections where it is defined that mineral oil includes crude oil and natural gas.

Officials say the proposed move would be against the stated commitment of fiscal stability by the government under the Nelp and coal bed methane (CBM) regimes. ���The oil industry is surprised at the wisdom of the taxman for considering exploration of oil & gas as two separate items. It is not the exploration of oil or gas, it is exploration of hydrocarbon. An explorer may encounter either oil or gas or even both (associated oil/gas). How can one dissociate the exploration of gas from the exploration of oil? There seems to be some confusion in the finance ministry,��� a senior oil company official said.

The finmin is, however, silent on reasons behind the changes in the Budget memorandum. ���There is no confusion, there is a dispute,��� a senior finance ministry official had said, when the issue was raised in a meeting. Nelp-VII has invited global E&P firms for 57 prospective hydrocarbon blocks and had hoped to attract investments worth $4-8 billion.