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CII CEO's Team Calls on Minister Jaipal Reddy

  • A high-powered CII-CEOs delegation led by Mr Vikram Mehta, Chairman, CII National Committee on Hydrocarbons, & Chairman, Shell Group of Companies, called upon Mr Jaipal Reddy, Union Minister for Petroleum and Natural Gas recently at New Delhi. The CEOs emphasized on the need to accelerate exploration activity in deep offshore and onshore areas.
  • The delegation included Mr PMS Prasad, Executive Director, Reliance Industries; Mr Rahul Dhir, Managing Director, Cairn India ; Mr Walter Simpson, Managing Director, BG India ; Mr Larry Fisher, Managing Director, Niko Resources India ; Mr Ajay Khandelwal, CEO, Jubilant Energy and Mr Nitin Shukla, Managing Director, Hazira Group of Companies.The CII CEOs delegation highlighted need to reassess the policy framework and hasten decision-making. It suggested solutions to expedite investments into the sector and to ensure that companies have access to off-shore drilling technologies.
  • Decision Making Process - According to CII, lack of inter-ministerial coordination on policy / regulatory issues is leading to significant delays. A possible solution is to offer blocks only after all regulatory and statutory approvals are in place, said the CII statement. Governance of the Management Committee also needs to be streamlined.Fiscal Stability & Sanctity of Contract - As exploration for hydrocarbons is a high risk business, it is important to not burden it with additional risk of fiscal uncertainty. Sanctity of the legally binding Contracts should be maintained. A prime issue, the 7-year 80IB tax holiday, for which, there should not be any discrimination between Oil and Gas.
  • Independent Upstream Regulator - CII has long recommended creation of an independent empowered regulator for the industry. Demarcating clearly the roles of a Regulator and a Policymaker will pave the way for accelerating exploration, development and production projects in the oil and gas sector.Transition to a gas-based economy with marketing and pricing freedom would give flexibility to manage technical and commercial risks, felt CII. The industry association pointed out that the proposed gas price pooling mechanism under Production Sharing Contract (PSC) can potentially distort price discovery. In addition, a "Declared Good Status" for natural gas, again a long standing demand of the industry, will avoid varying sales tax /VAT in different states. The Gas Marketing should be as per the PSC which  is an arms length market determined price.
  • The quality of blocks and data quality on offered blocks must be addressed to maximize the exploration potential and ensure adequate returns, recommended CII, adding that this would additionally encourage global players to invest.Transition to OALP - The CII delegation also called for transition to Open Acreage Licensing Policy (OALP) to further open up exploration. Currently New Exploration Licensing Policy (NELP) is restricted primarily to blocs identified by Directorate General of Hydrocarbons (DGH). OALP could identify more prospects as sufficient data is already available. OALP can be done in two phases - the Reconnaissance phase, to identify opportunities, and the Exploration phase, with back in rights for the initial explorer. However, the National Data Repository will need to be built for these blocks, suggested CII.
  • CII recommended early introduction of an Tax Royalty Regime which should be simple and easy to administer, in line with global practices. Almost all the advanced countries have Tax Royalty regime as against PSC system. The existing CBM contracts are principally tax royalty contracts though called Production Sharing ContractIndia imports over 75 per cent of its annual crude oil requirement, with oil and gas accounting for nearly 45% of India's energy needs. Increasing indigenous production of oil and gas will enhance the energy security of the nation. This can be achieved by accelerating exploration activity in deep offshore, unexplored offshore and onshore areas.
  • The Indian government, through the NELP, made a concerted effort to expedite the pace of exploration in the inadequately explored and unexplored areas of the country's sedimentary basins.  However, NELP, which permitted global and domestic companies to participate in the ensuing bidding rounds and allowed 100 per cent foreign direct investment (FDI) in E&P sector has witnessed investments of only a little over USD 15 billion in the nine rounds conducted so far which entailed auctioning of about  270 blocks.Investments in the sector of late have varied from low to moderate and companies, in particular, key global players, are not capitalising on the potential. 15 per cent of the total area is yet to be explored and only 1.06 million square kilometers (sq km) area is under active petroleum Exploration Licenses out of an estimated sedimentary area of 3.14 million sq km.  In addition, the latest technologies for deep sea drilling are yet to be deployed in India.

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