De-risking oil PDF Print E-mail
Monday, 25 November 2013 00:40
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Time to use the oil cess properly, or just scrap it

Given that just seven of India’s sedimentary basins are producing oil/gas, the government needs to find new ways to make India more attractive to large oil companies, more so since the interest in various New Exploration Licensing Policy (NELP) rounds has been diminishing over the years with less private sector participation. The fact that some exciting discoveries have been made over the last year should heighten interest. But the larger problem is that, by and large, apart from the well-publicised problems private operators have had with India’s regulatory regime—gas prices remain controlled despite the stated intention to keep them free—India is still not seen as an area with great hydrocarbon prospects. A large part of the reason is that just a little over a fifth of the country’s basins are moderately- to well-explored. So, while looking for oil/gas is always a dicey business even in areas for which there is enough seismic data available—after Shell relinquished Barmer, Cairn took over and drilled 13 dry holes before it struck gold in the 14th—in India, even the basic data is largely unavailable. Were the data to be made available, however, chances are firms would look at India with greater interest. To give an example, if the government is to offer the area Cairn has relinquished in Rajasthan, chances are firms will rush to pick it up since Cairn has already found oil there. More important, the company has put out a lot of seismic and other information on the block after working there for so many years.

Which is why it comes as a surprise that the government, through the Directorate General of Hydrocarbons (DGH) has not, over the years, just commissioned service contractors to conduct 2D/3D seismic surveys of each sedimentary basin. Indeed, the government has the money to do this since the Oil Industry Development Board (OIDB) cess, in place since 1975, was started only to help industry’s development. With the cess, largely paid by ONGC, now adding up to over R8,000 crore a year, the government has collected a whopping R1,04,000 crore of which just R902 crore has been given to the OIDB for industry development in the pre-1991 period. Given even 3D seismics costs around $1,000 per square kilometer, every year’s contribution is enough to fund over a million square km of data. Indeed, as in the case of the USO fund in telecom, which also serves no purpose since no one is taking funds from it, it is perhaps time to think of scrapping the OIDB cess which, over the past couple of decades, has simply deteriorated into another way to fund the fiscal deficit. In the process, ONGC’s balance sheet will look that much better each year.


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