FM moots shift from profit to revenue sharing... Reliance to enjoy old model
1 March 2013 5:40 AM IST
Union Finance Minister P Chidambaram announced in his Budget speech for financial year 2013-14 (FY14) on Thursday that the New Oil and Gas Exploration Policy (NELP) would be reviewed to move away from the profit sharing model to revenue sharing contracts. Under the existing policy, the operator of an oil or natural gas field first recovers the production cost and shares its profits, if any, with the government only after that.
It is worth noting in this context that Mukesh Ambani-owned Reliance Industries Ltd (RIL) has already been accused of gold-plating its expenditure and the Comptroller and Auditor General of India (CAG) is investigating this private integrated energy company's expenditure claims. Recently, the CAG complained to the government that RIL is not cooperating with it in continuing its financial audit.
The government's experience with the KG Basin natural gas fields has prompted it to review its policy of profit sharing and consider moving on to a model of revenue sharing. According to this new proposed mechanism, any petroleum and natural gas exploration company will have to offer revenue sharing to the government from the very first day of its operations and the highest bidder will get the oil or gas rights.
Interestingly, this new policy will not be applicable to new contracts. So Reliance Industries will remain under the old profit sharing model, forming an exclusive club in the country. Incidentally, it was the committee headed by Prime Minister's Economic Advisory Council (PEAC) Chairman C Rangarajan which first suggested moving to a revenue sharing model.
The Finance Minister also announced in his Union Budget speech that NELP blocks that have been awarded but are now stalled in the absence of defence and other necessary clearances will soon be cleared.
In another announcement in the Budget related to the petroleum and natural gas industry, Chidambaram said that the pricing policy of natural gas would be reviewed and uncertainties removed. This comes as a welcome development for companies like British energy multinational corporation (MNC) BP Plc, which have been complaining that artificially low gas prices have been impeding investments.
The major share of domestically produced natural gas is priced at $4.2 per million British thermal unit (mBtu), which is one-third of the imported cost. Both domestic and international firms have been insisting that such a cost is unremunerative for undertaking exploration in deeper and risky basins.
''The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed,' said Chidambaram.
The Rangarajan Committee has suggested pricing of domestically produced gas at an average of international hub prices and stripped down cost of imported liquefied natural gas (LNG). Currently, this average comes to about $8-8.5 per mBtu, half way meeting the expectations of companies of being allowed to charge a price equivalent to imported LNG.
Petroleum and Natural Gas Minister M Veerappa Moily has already accepted the recommendations and will be moving the Cabinet for a formal approval.
Commenting on the announcement, BP India Head Sashi Mukundan said, 'We welcome the focus on regulatory and pricing clarity for the exploration and production industry announced in the budget. A key next step should be the transition of prices of domestic natural gas to import parity in the next three years, similar to the diesel price reforms. To me, these measures will help build a sustainable gas market in the country.'
Chidambaram also informed on Thursday that a shale gas exploration and production policy will be announced soon.
It is worth noting in this context that Mukesh Ambani-owned Reliance Industries Ltd (RIL) has already been accused of gold-plating its expenditure and the Comptroller and Auditor General of India (CAG) is investigating this private integrated energy company's expenditure claims. Recently, the CAG complained to the government that RIL is not cooperating with it in continuing its financial audit.
The government's experience with the KG Basin natural gas fields has prompted it to review its policy of profit sharing and consider moving on to a model of revenue sharing. According to this new proposed mechanism, any petroleum and natural gas exploration company will have to offer revenue sharing to the government from the very first day of its operations and the highest bidder will get the oil or gas rights.
Interestingly, this new policy will not be applicable to new contracts. So Reliance Industries will remain under the old profit sharing model, forming an exclusive club in the country. Incidentally, it was the committee headed by Prime Minister's Economic Advisory Council (PEAC) Chairman C Rangarajan which first suggested moving to a revenue sharing model.
The Finance Minister also announced in his Union Budget speech that NELP blocks that have been awarded but are now stalled in the absence of defence and other necessary clearances will soon be cleared.
In another announcement in the Budget related to the petroleum and natural gas industry, Chidambaram said that the pricing policy of natural gas would be reviewed and uncertainties removed. This comes as a welcome development for companies like British energy multinational corporation (MNC) BP Plc, which have been complaining that artificially low gas prices have been impeding investments.
The major share of domestically produced natural gas is priced at $4.2 per million British thermal unit (mBtu), which is one-third of the imported cost. Both domestic and international firms have been insisting that such a cost is unremunerative for undertaking exploration in deeper and risky basins.
''The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed,' said Chidambaram.
The Rangarajan Committee has suggested pricing of domestically produced gas at an average of international hub prices and stripped down cost of imported liquefied natural gas (LNG). Currently, this average comes to about $8-8.5 per mBtu, half way meeting the expectations of companies of being allowed to charge a price equivalent to imported LNG.
Petroleum and Natural Gas Minister M Veerappa Moily has already accepted the recommendations and will be moving the Cabinet for a formal approval.
Commenting on the announcement, BP India Head Sashi Mukundan said, 'We welcome the focus on regulatory and pricing clarity for the exploration and production industry announced in the budget. A key next step should be the transition of prices of domestic natural gas to import parity in the next three years, similar to the diesel price reforms. To me, these measures will help build a sustainable gas market in the country.'
Chidambaram also informed on Thursday that a shale gas exploration and production policy will be announced soon.
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