Instilling confidence in global players would be key to India’s hydrocarbons output
The open acreage licensing (OAL) policy proposed by oil minister Dharmendra Pradhan is unproven and tentative. Its efficacy is yet to be determined. Given that this new policy was untested, coming down heavily on new exploration licensing policy (Nelp) that held this country’s hydrocarbons exploration for 10 years, may not serve the purpose.
Immature comments on Nelp does not augur well for the hydrocarbons or the energy sector as a whole, speaking volumes of Pradhan’s inexperience as a policymaker. If 256 blocks offered across nine rounds of Nelp’s global bidding during 2000 — 10 have only yielded three-days oil consumption output, why is it that Pradhan’s ministry has woken up only now after having twiddled thumbs in the last three years?
The realisation about policy inadequacy of earlier regimes has come too late. In addition, there is no empirical evidence to prove Pradhan’s claims on output and yields. From the days of oil and gas fields’ allotment rigidly on nomination basis, the country’s exploration and production policy has come up in last two decades.
A major part for this topsy-turvy journey may be attributed to nine rounds of Nelp that allowed India to experiment with private and foreign investments in the capital-intensive exploration and production sector.
Inflexibility on pricing, marketing, timeframe, investments and output leading to limited participation in exploration and production, may only be partly true. The last four years of UPA’s second tenure and three years of Narendra Modi government’s indecisiveness, has resulted in virtual drying up of investments in the exploration and production of oil and gas fields.
In addition, the volatility and downward spiral in global energy markets have had an adverse impact as investments in the sector have become untenable. Before embarking abashedly on a new open acreage policy, this government will do well in taking a call on the hopelessly low hydrocarbons output in the 256 blocks that were offered to private, foreign and state-run exploration companies.
Course corrections relating to these blocks mid-way should not be ruled out as a policy option to maximise the output from either Nelp or nomination blocks.
Open acreage licensing policy applicable to sedimentary basins spread over 3.14 million sq km must be rolled out in phases, based on experience that’s gained in the first few months.
Cost recovery related production-sharing contracts might have had their pitfalls given the policy inefficiency and rampant corruption during ten years of UPA, but then a few cases getting into expensive litigation or international arbitration has not helped smoothen out policy glitches either.
Whatever be terms on which oil and gas fields were handed over to private players, the underlying undisputed principle should be to protect the sovereign authority on these vast energy resources.
Private companies as explorers and production contractors must be seen as investors with risk appetite trying to realise cash-in on resources.
Proceeds of such successful explorations may have to be apportioned and shared with the government for benefit of the people. Extrapolating this principle of ownership and operator of an energy asset in commercial contracts is the biggest challenge.
Issues of political leadership’s commitment and conviction towards achieving energy security has had come under scrutiny in the past. This must be put to rest once for all.
Instilling confidence in major global exploration players would be the key to India’s long-term hydrocarbons play that’s key to double-digit economic growth.