Regulating it right

There is unprecedented investor interest in India’s petroleum exploration and production (E&P ) sector , with UK-listed Vedanta and global major BP, for instance, keen on big-ticket investments. This is welcome . We do need to attract long-term investment and global expertise into our E&P sector, which, though promising, is both risky and capital-intensive . But in tandem , we need a world-class licensing regime, sound regulation , oversight and investor comfort. Mature licensing regimes abroad rely on up-to-date legislation, detailed codes of practice and extensive guidance notes. Out here, we have thus far preferred to follow the case-by-case approach . Instead, the directorate general of hydrocarbons (DGH), the upstream regulator, needs to frame clear-cut operational rules for E&P . The Oil Fields Act, 1948, which was legislated when E&P in the deeper offshore was unknown , appears quite dated as well.

A key instrument of extant regulation in oil and gas production is the so-called management committee (MC), which can consist of a minimum of two government nominees and similar representation from the licensee or contractor. The MC is also mandated to form, say, financial and technical sub-committees , with ‘such representatives as may be agreed by the MC’ . So, it is possible , say, for a two-member panel to okay expenditure both routine and one-off . Such an arrangement is far too ad-hoc , especially when the costs up for approval can run into billions of dollars. Higher approved costs would lower profit petroleum and the government take. The Comptroller and Auditor General is reportedly auditing costs in the Krishna-Godavari basin. But we surely need to develop more specialised expertise, within institutional settings and without. The leading licensing regimes overseas have done away with the MC concept and, instead , publish fact sheets, manuals and guidelines, and have in place stand-alone oversight to keep tabs on E&P operations. Given that up to 10 billion tonnes of crude oil may be in situ in Indian sedimentary basins, enough to meet present requirements for three decades, our regulatory systems need to be as per international standards.