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Monday, 22 January 2018 05:48
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In a BAU scenario, India’s oil import dependence will rise


Though it will be a while before the results of India’s first Open Acreage Licensing (OAL)—in this policy, oilcos pick the areas they are interested in and then bid for them—policy will be known, the government needs to do a lot more if it wants to achieve its target of lowering its import dependence by 10% by 2022 and 50% by 2030. Indeed, it needs to completely revamp its policies on the sector. While the terms of the OAL appear quite friendly, what worries oilcos is that the government’s treatment of the sector, historically, has been less than fair. The fact that the two biggest private-sector producers—Reliance Industries and Cairn India—are locked in disputes with the government can’t be a great advertisement for the sector either. Nor is it that all the disputes are old ones. While the one with RIL goes back to the allegations of gold-plating expenses, it was just a year ago that oilcos were sent service tax notices on their ‘cash calls’ as well as ‘cost petroleum’. In a consortium, one oilco does the actual development work and routinely asks other partners for their contributions (‘cash calls’) and the taxman wants to levy a tax on this! Similarly, ‘cost petroleum’ is the share of output given to the oilco to compensate for the costs it has incurred, not an income, so how can it be taxed?

The OAL promises to allow oilcos to freely sell their oil/gas; but, despite this being allowed in all earlier gas bids, prices were closely regulated. Indeed, when they were freed, this was done only for new fields in difficult areas—so much so that, with the current prices very low, ONGC has said it cannot produce gas. Despite being given marketing freedom for crude oil, Cairn has to sell its products to local companies at a discount. When Cairn found more oil and wanted its contract extended, the government gave its consent, but in return for a hike in revenue-share from 40% to 50%. Similarly, when the government finally agreed to shift to an ad valorem cess on crude in the last Budget—in keeping with the fact that a $9 cess when oil was at $100 a barrel was quite different when oil was at $50—it kept the rate at 20% to ensure the industry still paid the same $9-10 per barrel. More examples like this can be given, but they all demonstrate the same thing—that the government doesn’t seem too concerned with finding solutions to industry’s concerns. So, when OAL’s terms say oilcos ‘may’ give preference to local suppliers, does this mean local suppliers have to be given preference; and if they are not, who decides the oilco is not to be penalised? Oil/gas exploration is a tough business and, to do a good job, companies need to know the government has their back—so far, there is little evidence the government has given of this.


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