HELPing hand… and foreign hand

The government’s Hydrocarbon Exploration Licensing Policy (HELP) has the potential of being a game-changer, in terms of attracting investment, generating jobs, and boosting economic revival. The potential has to be tapped, but the direction is right. The shift from the profit-share regime, involving the contentious cost-recovery provision, to one based on revenue share regime is not only transparent but also does away with many a complication. Pricing and marketing freedom is another salutary feature of the new policy.

By replacing the existing New Exploration Licensing Policy, the Cabinet Committee on Economic Affairs (CCEA) has sought to introduce more investor-friendly provisions. According to an official release, the CCEA has approved a policy for grant of extension to the production sharing contracts (PSCs) for small- and medium-sized discovered fields. This extension policy deals with 28 fields. Of these, 27 small- and medium-sized fields were awarded as a result of two rounds of bidding during 1991 to 1993, and one (PY-3) was separately put to bidding as discovered field. For many of these fields the recoverable reserves are not likely to be produced within the remaining duration of contract period of these PSCs.

The government share of profit during the extended period of contract shall be 10 per cent higher for both small- and medium-sized fields than the share as calculated using the normal PSC provisions in any year during the extended period, the release said. This will help the government get additional revenue of Rs 2,890 crore on account of additional royalty and cess as compared to present concessional regime in these blocks.

Petroleum & Natural Gas Minister Dharmendra Pradhan told the media: “The new HELP approval will allow exploration and production of conventional and unconventional oil and gas including CBM [coalbed methane], shale gas, etc. under a single license. The concept of Open Acreage Policy will also enable exploration & production companies choose the blocks from designated areas.”

The uniform licensing policy not only dispenses with obtaining separate licences but also makes compliance to the taxation regimes for various forms of exploration and production, be it conventional or unconventional like shale.

According to government estimates, HELP will improve the viability of some of the discoveries already made and also would lead to the monetization of future discoveries. The reserves which are expected to get monetized are of the order of 6.75 trillion cubic feet, considering a production profile of 15 years. The associated reserves are valued at $28.35 billion (Rs 180,000 crore) Besides, these there are around 10 discoveries which have been notified and whose potential is yet to be established.

The government also expects “substantial investment” and “substantial” employment generation during the development phase of these discoveries, a part of which would continue during the production.

All this sounds very good, but that should not make one lose sight of the possible pitfalls. It needs to be mentioned here that marketing and pricing freedom has been restored rather than introduced the first time. It was the bickering between the Ambani brothers that had brought in administered pricing. Never before did a family dispute impact economic policy in such a manner.

Quite apart from corporate warfare and cronyism that often mold policies pertaining to various sectors (civil aviation readily comes to mind), there are global lobbies that would be worried if India, one of the largest importers of fossil fuel, acquires energy safety. This was one of the reasons that NELP never really took off. There is indeed many a ‘foreign hand’ manipulating several politicians and activists so that India’s dependence on imported crude does not lessen.

The Narendra Modi government must ensure that the country’s energy sector does not suffer because of corporate lobbying and foreign hand.