NELP VI auctions hit roadblock

The latest round of auction for oil blocks under NELP VI seems to have hit a roadblock -- "erratic fiscal packages."

According to the Directorate General of Hydrocarbons (DGH), which is overseeing the auctions under the New Exploration and Licensing Policy (NELP), some bids offer a reducing share of oil to the government as years progress, which is against the general practice of an ascending share of the profit, and that is why they are seen as erratic.

"In bids such as those submitted by Oil India, while offering a higher share of the profit towards the beginning of the production, it would dwindle to as little as one per cent of the total production," sources said.

A lower share of profits could also mean that if there is a major discovery towards the end of the PSC (production sharing contract), the government would lose out on its share of the oil or gas from that find, analysts pointed out.

Along with Oil India, Reliance Industries and Adani Enterprises are among those who have submitted similar non-acceptable bids. Under bid conditions, the government's share of the profits was expected to move upwards in favour of the government. This erratic bidding has affected 21 blocks out of the 52 auctioned.

Sources in the oil ministry say Petroleum Minister Murli Deora "is likely to ask the DGH to renegotiate with the top bidders for the blocks on the erratic fiscal packages."

Another meeting of the empowered committee of secretaries (ECS) is likely to be convened once the DGH completes its negotiations," a ministry official said.

This also means that the government is unlikely to meet its self-imposed deadline of January 2007 for the award of these blocks to the successful bidders. Typically, after the ECS meet, there is a minimum three-week gap before the recommendations find their way to the Cabinet.

When contacted, DGH Deputy General Manager SN Thakur, who is also in charge of NELP, however, said the latest round of allotting exploration blocks is running according to schedule and the announcement of block allocation will take place by the middle of January next year.

The bidding format under NELP involves a share of the profit petroleum from possible hydrocarbon discoveries from the blocks. The DGH has said renegotiations should be carried out with the bidders for the 21 blocks in order to increase the government's share of the percentage of the profit.