All that gas PDF Print E-mail
Friday, 07 February 2014 01:01
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India does not have unlimited time, or resources

Given the pace at which India’s shortages of natural gas, and crude oil and coal, are rising, you would think the government would be in a hurry to get fresh investments in. A McKinsey study reckons that, the way things are going, India’s energy imports will rise to 50% of total demand by 2030, up from around 30% right now. Apart from the fact that this proportion is amongst the highest in the world, this means that India’s current account deficit is on its way to becoming structurally impaired, and that has its own consequences for the currency and the corporate/banks whose future gets impacted by this.

Yet, despite the urgent need for getting in more exploration investment into the country, the government has not been able to decide on what policy to follow for bidding out new gas/oil fields and, as a result, it looks likely that the next round of bidding under the new exploration and licensing policy (NELP) may not take place in the tenure of this government. While the Rangarajan committee has plumped in favour of a revenue-share model where the only thing the government needs to keep a tab on, and that is relatively simple, are the revenue inflows of the gas/oil developer. The Planning Commission, however, feels the current contract where firms get to first recover their costs—in case they find oil/gas—is preferable. Though revenue-sharing is a better idea since it ensures the government no longer has to—as it does now—clear every major expenditure of oil/gas prospecting firms, the important thing is for the government to take a decision quickly. It would also do well to keep in mind that it is not only this policy that is keeping investors away. Prospective investors want clarity on the taxation policy—it doesn’t help that the government first offered, and then took away, the tax holiday on exploration of natural gas. Similarly, firms want clarity on whether free-market pricing will be allowed or not. That the government should go slow on this is especially unfortunate since oil/gas is a sector where, in the last year, a lot of the policy cobwebs were being removed.


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