Why in news?
India has announced a new hydrocarbon exploration licensing policy (HELP).
What’s the problem with NELP?
- The New Exploration Licensing Policy (NELP) has been in existence for 18 years. Over the years, various issues have arisen in NELP.
- Presently, there are separate policies and licenses for different hydrocarbons.
- There is overlapping of resources between different contracts.
- Unconventional hydrocarbons (shale gas and shale oil) were unknown when NELP was framed.
- While exploring for one type of hydrocarbon, if a different one is found, it will need separate licensing, thus, adding further to the cost.
- The Production Sharing Contracts (PSCs) under NELP are based on the principle of “profit sharing”.
- When a contractor discovers oil or gas, he is expected to share with the Government the profit from his venture, as per the percentage given in his bid. Until a profit is made, no share is given to Government, other than royalties and cesses.
- The process of approval of activities and cost gives the govt a lot of discretion and has become a major source of delays and disputes.
- Another feature of the current system is that exploration is confined to blocks which have been put on tender by the govt.
- Currently, the producer price of gas is fixed administratively by the Government. This has led to loss of revenue and a large number of disputes.
- The current policy regime, in fixing royalties, does not distinguish between shallow water fields and deep/ultra-deep water fields where risks and costs are much higher.
What are key features of HELP?
- India has announced HELP, which offers single license to explore conventional and unconventional oil and gas resources.
- The new policy also gives the investors the much needed freedom in pricing and marketing for crude oil and natural gas.
- There will be a uniform licensing system which will cover all hydrocarbons, under a single license and policy framework.
- Contracts will be based on ‘biddable revenue sharing’. Bidders will be required to quote revenue share in their bids and this will be a key parameter for selecting the winning bid.
- An ‘Open Acreage Licensing Policy’ will be implemented whereby a bidder may apply to the Government seeking exploration of any block not already covered by exploration. This will enable a faster coverage of the available geographical area.
- A concessional royalty regime will be implemented for deep water (5%) and ultra-deep water (2%) areas. In shallow water areas, the royalty rates shall be reduced from 10% to 7.5%.
- The contractor will have freedom for pricing and marketing of gas produced in the domestic market on arms length basis.
- To safeguard the Government revenue, the Government’s share of profit will be calculated based on the higher of prevailing international crude price or actual price.
Why HELP is necessary?
- The country currently faces a situation where oil and gas constitutes a major and increasing share of total imports.
- Oil production has stagnated while gas production has declined. There is a need for a concerted policy measures to stimulate domestic production.
- Thus, the new policy regime marks a generational shift and modernization of the oil and gas exploration policy.
- It is expected to stimulate new exploration activity for oil, gas and other hydrocarbons and eventually reduce import dependence.
- It is also expected to create substantial new job opportunities in the petroleum sector.
- The introduction of the concept of revenue sharing is a major step in the direction of “minimum government maximum governance”.
- Marketing and pricing freedom will further simplify the process.
- These will remove the discretion in the hands of the Government, reduce disputes, avoid opportunities for corruption, reduce administrative delays and thus stimulate growth.
Source: PIB
