Oiling the wheels PDF Print E-mail
Wednesday, 19 June 2013 00:00
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At long last, some progress in clearing oil blocks

Given how net oil imports are around 5% of GDP and coal imports around 1%—as a proportion of the current account deficit (CAD), oil imports are 180%—finance minister P Chidambaram is correct in his assessment that fixing this is key to a healthy CAD. Indeed, while it is true that oil and gold imports cannot be put on the same footing, gold imports are around a third of oil imports. That said, the question is what the government is doing, or can do about it. Given how the import intensity of the energy economy is growing—it is around 40% already—the obvious solution is to find ways to augment local supplies. One solution, that has been hanging fire for months and is to be decided upon later this week, is to raise prices of natural gas.


Even this, however, is just part of the solution. The larger problem is that, thanks to poor government policies, private sector firms are responding less and less to each successive round of oil/gas block bidding. While this is partly due to the government keeping control over pricing of oil/gas, as FE has reported, a large part of the problem is the fact that the government just sits on clearances for oil/gas blocks. Under pressure from the new oil minister, the ministry cleared 200 pending projects over the last few months. Since each oil field is run by a management committee (MC), much the same way a corporate is by a board, getting MC clearances are critical. Since babus from the ministry and the Directorate General of Hydrocarbons who are ex-officio members of MCs were not willing to take decisions, all exploration work on these fields ground to a halt. One of the clearances, it turns out, was pending since 2004. If the oil companies find the kind of oil/gas they think these fields have, estimates are $10-12 billion could get invested here in the next 3-4 years. In two of the fields cleared, one each for RIL-BP and Cairn, the companies have announced finds within months of obtaining the clearances, though the exact commerciality of the discovery will take much longer to establish.

What is problematic though is that, at the same time, some of the more important fields are being given up due to government clearances—in the case of both RIL-BP and Cairn, the firms are saying that even after the CCI clearance, they are just getting to explore around 35-40% of their blocks in the KG Basin and this is not worth their while; ONGC is in the process of evaluating its clearance for a block in the KG Basin and may go the same way. In the case of coal blocks, similarly, the government is yet to come up with a policy that allows for private mining, a shame given that the BJP had introduced a Bill allowing precisely this when it was in power—perhaps someone needs to remind the party about that.


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