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Not just gas pricing PDF Print E-mail
Monday, 16 March 2015 04:40
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Oil sector has several regulatory hurdles as well

Much of the focus on what the government is doing in the petroleum sector, understandably, has been on the inability to get the gas pricing right—it has been hanging fire since December 2012 when the Rangarajan panel submitted its report—since this is what has ensured there is little new exploration activity for gas in the deep waters, by even the state-owned ONGC. Indeed, it has been 5 months since the NDA said a premium would be offered for deep-water wells, but there is no resolution on this either. What is even more worrying, however, as an FE analysis shows, under 15% of the 213 discoveries made—107 oil and 106 gas—in the 61 blocks awarded so far under the New Exploration Licensing Policy (NELP) and pre-NELP period are currently producing oil or gas. Not all of this extremely poor showing can be laid at the petroleum bureaucracy’s door, but certainly it has to take the lion’s share of the blame. In the case, for instance, of Italy’s ENI SpA that bagged the AN-DWN-2003/2 block near the Andaman Islands in 2005—the block was larger than Reliance Industries’ famed KGD6—the company has not been able to explore due to objections from the department of space (DoS). Why this was not sorted out before the block was bid out for is anyone’s guess, but when the UPA claimed the matter had been sorted out, so many restrictions were put by the DoS, ENI simply decided to leave last year. A similar fate was met by BP and 3 other foreign firms.

While the ongoing fight between Reliance Industries and the government on gas pricing is well known, several other of the company’s projects are also stuck. Fourteen discoveries of gas which ONGC and RIL claim hold around 3.6 trillion cubic feet of gas were put on hold as the regulator insisted they conduct a ‘drill stem test’ first to prove commerciality—while this is not mandatory under the contract, the UPA proposed giving the companies more time to do this, but the NDA is yet to approve this; 3 fields belong to RIL and 11 to ONGC. Several proposals of the company to develop a clutch of fields have also not been approved since the regulator feels the company cannot combine old and new fields—the new price applies to new fields, not the old ones—even though it is viable to explore certain clusters together. If Reliance’s arbitration cases continue to remain stuck for one reason or another, Cairn has had even worse luck. After a dispute between it and the government on profit-sharing, the company won its arbitration in Malaysia and started charging the government for this. The government has now slapped a $314 million notice on Cairn, arguing that the foreign tribunal’s award—the contract allowed for arbitration—has not yet been enforced in India. Cairn continues to have a dispute—for over 5 years now—on gas prices for its Ravva field and its request for a 10-year extension for its Ravva field has not been granted; two years after it first submitted a request for a similar extension for its Barmer field, the ministry is working on renegotiating the terms of the contract prior to giving an extension. Given this, it is hardly surprising India’s oil and gas production continues to remain the mess it is in.

 

 

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