(FE)
On October 9, 2017, the prime minister invited the chief executives of major oil companies and energy experts to discuss how best to encourage higher exploration and production (E&P) in India to meet the target of reducing oil imports by 10%. The ministry of petroleum and natural gas (MoPNG) asserted that the overarching objective shall be to maximise exploration, recovery and production; revenue will be only a secondary consideration in decision-making. One wonders whether the finance ministry was listening, and if adequate attention is being paid to the fiscal measures that are out of sync with the government’s professed objectives and plan of action. Are various ministries marching in harmony to achieve the PM’s target?
The fiscal measures that are out of sync with the GoI’s objectives are disproportionate levy rates—cess @20% and royalty @10%—and the extension policy for mature/producing fields. Higher levy rates (cess and royalty) reduce the rate of return for oilcos, which in turn mean less risk-capital investment by the latter. Less risk-capital translates to lower recovery of hydrocarbons.
Access to oil and gas are crucial drivers for the growth and ambitions of a country. As is known, the economic philosophy of Fabian socialism and nationalisation took a complete about-turn in 1991. ‘Free market’ has been our mantra for the last 25 years. Oil-gas E&P, along with telecom, has been in the forefront of a massive and successful induction of private capital for our growth. In petroleum, the new policies of Discovered Small Fields (DSF), Open Acreage Licensing Policy (OALP), Hydrocarbon Exploring and Licensing Policy (HELP) and the envisioned natural gas marketing hub show that this government is determined to do what it takes to bring an energy revolution in India. The prime minister’s call to reduce oil and gas imports by 10% by 2022 has the industry hungry and seeking new acreages under the new policies. In this scenario, however, there remain a few policies that are antithetical to this goal—the Oil Industry Development cess is one.
