The model contract for India's much celebrated bidding round for oil & gas blocks is all set to change. The committee headed by Prime Minister's Economic Advisory Council's (PMEAC) chairman Dr C. Rangarajan had its second meeting on Friday to discuss the changes in the model Production Sharing Contract (PSC) for oil & gas blocks those are offered under New Exploration Licensing Policy (NELP). In fact, sources in the petroleum ministry said that next round of NELP has been put off till the new model of contract for oil & gas blocks are finalised.
Sources also indicated that the NELP rounds of auctioning may be completely replaced by an Open Acreage System (OAS) along with the new model contract suggested by Dr. C Rangarajan panel. Presently under NELP, technical arm of Petroleum Ministry the Directorate General of Hydrocarbon (DGH) identifies set of oil & gas blocks which are offered offered to domestic and international in a particular time of the year. However, under OAS govt plans to open a national data repository for hydrocarbon rich area and companies can access the data repository anytime of the year. And depending on the area, prospectivity, and competition between various players for one particular area bids can be invited anytime of the year.
A final call on changing from NELP to OAS has to be taken by the cabinet, but officials say, “NELP or OAS the model contract will be based on Rangarajan Committee report.” Sources privy to the deliberation in meeting told NDTV that models of oil & gas blocks contract from other countries were compared with Indian model Production Sharing Contract (PSC).
Officials on condition of anonymity said that the members of the review panel agreed to criticism of Comptroller and Auditor General (CAG), about that ‘potential of manipulation' by contractors in the present format of PSC. CAG in its audit report of private firm's PSC last year pointed out that contractors have taken full advantage of the loopholes of the PSC and govt's share of profit petroleum has been kept minimal. CAG came heavily on the lapses on part of Directorate General of Hydrocarbon (DGH) to plug the loopholes in PSC, specially in case of contract with KGD-6 block off the east coast, contracted by Reliance Industries (RIL).
One of the members present in the meeting of Rangarajan panel said that “under present PSC regime govt's share of profit petroleum is calculated on the basis of pre-tax investment multiple achieved by the contractor in the previous year.” Under this provision in the initial years till the time contractor has earned 150% of its investment, it shares only 10-28% with the govt depending on the year of production from a particular oil or gas block. The official added that this arrangement is skewed against govt. In practice, every contractor would have a chance to manoeuver his investment pattern in such a way that he never crosses 150%.
One of oil ministry officials who don't want to be named gave example of RIL's KGD-6. He said that “with investment of $8.5 billion, it requires the net cash income to be increased to at least to a level of $14.4 billion to make the govt eligible for a miniscule profit share of only 16%.” He further pointed out the fact that under NELP blocks under production at present govt's share of revenue is as low as 6% only.
One alternative option that is being discussed by the panel is royalty based contract, which was also suggested by the CAG. Under royalty based regime contractor will have to pay 15-20% royalty of the value of oil or gas, as soon as the production starts from the block.
Official from one of the private sector company who don't want to be quoted, said that whatever change the Rangarajan committee proposes it should not work as deterrent for investment in the sector. Another official from a public sector company said that India already have various model of PSC, such as under NELP, Pre-NELP and Nomination blocks. He added that changes should not be in retrospective in nature.
Meanwhile, the Rangarajan panel has invited comments on terms of contracts for exploration of oil and gas to be signed in future. The comments are to be sent to the Petroleum Ministry by 31st July. Later the panel will analyze all the comments and present its report by September end, which will later taken up by the cabinet for final approval and implementation.
10 things about India's oil & gas exploration regulation
1. Nine NELP rounds conducted till date since it was launched in 1998
2. 249 oil & gas blocks has been awarded to various companies under NELP
3. KGD-6 block off east coast was part of NELP-1 round where RIL discovered gas
4. For convenience, the blocks went under bidding before the NELP regime are now called Pre-NELP block
5. Contracts for 28 exploration blocks were signed under Pre-NELP rounds since 1993
6. Under pre-NELP 16 oil & gas exploration blocks are under operation
7. In 2011 CAG pointed out rampant misuse of loopholes in contracts by private firms
8. In June 2012 C Rangarajan panel was appointed to modify model contract for oil & gas blocks for future
9. 38 more oil & gas blocks were awarded under special category of small & medium sized fields
10. Before 1990 mostly contracts were given to PSU oil firms on ‘Nomination Basis'
History of Oil & Gas exploration in India
1. Oil & Gas exploration history of India began in 1889
2. In 1889 W L Lake of Assam Railway and Trading Co. (AR & T Co) started Digboi Well No-1
3. W L Lake used to urge his men “Dig boy, dig” and the words get distorted and the place was named Digboi
4. In 1921 Burmah Oil Company (BOC) takes over Assam Oil Company (AOC).
5. In 1948 Geological Survey of India (GSI) started geophysical surveys in Cambay area
6. In 1956 Moran oil field discovered by AOC/BOC
7. In 1956 Oil & Natural Gas Commission (ONGC) was established
8. In 1959 ONGC becomes autonomous body, under an act of parliament
9. In 1959 Oil India Ltd (OIL) was incorporated and registered as a Rupee Company
10. In 1960 oil struck at Ankleswar in Gujarat and Rudrasagar in Assam
11. In 1961 govt and BOC become equal partners in OIL
12. ONGC first discovered oil in 1968 in Geleki
13. 1970 was the year when India's first offshore well spudded in the Gulf of Cambay
14. In 1974 ONGC struck oil in Bombay High
15. 1983-84 was remembered as first gas discovery in the country (at Razole in Andhra Pradesh and Gotaru in Rajasthan)
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