Oil & Gas In­dus­try Wants Govt to Re­spect Sanc­tity of Con­tracts

The Economic Times - - Economy - OUR BUREAU

In­dia’s ex­plo­ration ac­tiv­ity has crashed due to loss of fo­cus af­ter big dis­cov­er­ies, ar­bi­trary pol­icy changes, lack of re­spect for sanc­tity of con­tracts and de­te­ri­o­rat­ing risk-re­ward ra­tio, but the sit­u­a­tion can be re­vived with proper mea­sures, the ex­plo­ration in­dus­try has told the new govern­ment. Seis­mic sur­veys, a key ac­tiv­ity in the hunt for hy­dro­car­bons, plum­meted 91% in the five years to 2012-13 in on­shore blocks and 95% in the more chal­leng­ing off­shore re­gions, the As­so­ci­a­tion of Oil and Gas Oper­a­tors has es­ti­mated. Fur­ther, the num­ber of wells drilled has dipped 22% in the coun­try, which ur­gently needs to step up ex­plo­ration as it im­ports 80% of the oil it con­sumes, said the in­dus­try body. “Pri­vate risk cap­i­tal has dried up. Ex­plo­ration ac­tiv­ity has nose­dived over the last five years,” AOGO, which rep­re­sents top com­pa­nies in the pri­vate and pub­lic sec­tor in­clud­ing BP, ONGC, Re­liance In­dus­tries, BG, Cairn In­dia and oth­ers, said in a let­ter to the Cab­i­net sec­re­tary. The ex­plo­ration in­dus­try has been mired in dis­putes dur­ing the UPA govern­ment. These in­clude suc­cess­ful ex­plor­ers such as Re­liance In­dus­tries and Cairn In­dia, which have found the big­gest re­serves of oil and gas since the dis­cov­ery of Bom­bay High in the seven­ties. The in­dus­try body says that the govern­ment’s ap­proach has changed dras­ti­cally, and in the wrong di­rec­tion. “Moved away from the main ob­jec­tive of NELP of “max­i­mize ex­plo­ration, pro­duc­tion & en­ergy se­cu­rity to a “no­tional govern­ment rev­enue max­i­miza- tion”, poli­cies are de­signed with a huge trust deficit with­out recog­nis­ing the “con­ver­gence” of in­ter­ests in the PSC regime. PSC ad­min­is­tra­tion is be­ing mis­used to set­tle ex­tra­ne­ous dis­putes or sus­pected frauds,” AOGO said.

The in­dus­try feels that it is a vic­tim of its own suc­cess. “Quick sig­nif­i­cant dis­cov­er­ies made us lose the per­spec­tive,” it said. The oil and gas in­dus­try is wor­ried that In­dia is los­ing lus­tre as an in­vest­ment de­ci­sion as the govern­ment has strug­gled in its role as con­tract ad­min­is­tra­tor; the oil min­istry failed to re­solve pol­icy con­flicts in a timely man­ner; there has been vi­o­la­tion of the sanc­tity of con­tracts and lack of recog­ni­tion that the In­dian up­stream in­dus­try de­rives its strength from the enthusiasm of ex­ist­ing play­ers. It has sug­gested that the coun­try must re­al­is­ti­cally as­sess its ge­ol­ogy, fo­cus on pro­vid­ing ge­o­log­i­cal in­for­ma­tion, im­prove the riskre­ward ra­tio for in­vestors and re­move, or at least min­i­mize, un­nec­es­sary con­trols that do not add value.

The govern­ment’s ap­proach to­wards ex­plo­ration and pro­duc­tion as well as com­pa­nies in­volved in this ac­tiv­ity has largely been shaped by high-pro­file is­sues re­lat­ing to the KG-D6 block, which ini­tially hoisted In­dia to global lime­light as the world’s big­gest find in the year it was dis­cov­ered. How­ever, pro­duc­tion fell sharply leading to a bit­ter dis­pute be­tween the oil min­istry, which blamed the com­pany, and RIL that said it suf­fered be­cause of com­plex ge­ol­ogy in the chal­leng­ing deep-sea re­gion.

The ex­plo­ration in­dus­try has been mired in dis­putes dur­ing the UPA govt

The dis­pute shaped the UPA govern­ment’s ap­proach to­ward the sec­tor, AOGO said. “The en­tire in­dus­try has been held cap­tive to is­sue with a sin­gle block,” it said and sug­gested that dis­pute-res­o­lu­tion mech­a­nisms should be faster and in­de­pen­dent, and the pro­duc­tion-shar­ing con­tract, the bi­ble of oil­field ad­min­is­tra­tion, should not be the in­stru­ment to deal with al­le­ga­tions of fraud and col­lu­sion. “Govern­ment role and method­ol­ogy for fi­nan­cial over­sight of oper­a­tors needs clar­ity and trans­parency. (It should) de­velop ro­bust PSC-based eco­nomic model with the help of ex­perts for un­der­stand­ing of over­all eco­nom­ics by key de­ci­sion mak­ers,” it said. Top in­dus­try ex­ec­u­tives say that the oil min­istry has not hon­oured the sanc­tity of con­tracts and in­ter­preted it dif­fer­ently from time to time depend­ing on what is ex­pe­di­ent and con­ve­nient. This, ex­ec­u­tives say, is a huge de­ter­rent for ex­plo­ration ac­tiv­ity. The in­dus­try body agrees. “The con­tract should not be tin­kered, as it de­stroys cred­i­bil­ity of the sys­tem and scares fu­ture par­tic­i­pants in In­dian in­dus­try.” These is­sues are al­ready weigh­ing in the minds of pol­icy-mak­ers. The govern­ment has not been able to in­vite bids for a new round of ex­plo­ration blocks for more than two years. A key rea­son for that is that ex­ist­ing play­ers in the in­dus­try are com­plain­ing that the reg­u­la­tory en­vi­ron­ment is not con­ducive for healthy busi­ness ac­tiv­ity. But the in­dus­try also ac­knowl­edges var­i­ous pos­i­tives in the In­dian regime. These in­clude trans­parency in the al­lo­ca­tion sys­tem, and the re­cently in­tro­duced open stake­holder brain-storm­ing and so­lu­tion-hunt­ing sys­tem.

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