Oil ministry budges on upstream regulator

The petroleum ministry is finally preparing the ground for an independent regulator for the upstream (exploration and production) sector.

The move comes on the heels of recent confrontations between the Directorate General of Hydrocarbons (DGH), the quasi regulator for the upstream sector, and the oil companies, notably Oil and Natural Gas Corporation (ONGC) and Reliance Industries.

"The DGH is a mere technical arm of the petroleum ministry, not a regulator," an official in the oil ministry said, adding that the procedures for setting up a new regulatory board have already been kicked off.

"As of now, all regulatory powers rest with the ministry," the official clarified.

The call for an independent upstream regulator, which is over a year old, has been backed by the Planning Commission and various consultants, according to industry officials. "The oil ministry finally seems to be budging on the need for an upstream regulator," the official said.

The government official did not reveal the time frame by when the regulatory Bill would be finalised.

The setting up of the upstream regulator would reverse the earlier view of the ministry which was against such a body.

"Since oil companies sign a production sharing contract with the government, the government was of the view that there was no need for an independent regulator in the upstream sector. However, with problems between oil companies and the DGH coming up, the need for a regulator has grown strong," an industry official said.

As for the DGH, which currently handles the auction of oil blocks, including providing technical data for the auctions, and clears field development costs of exploration blocks, the plan is to merge it with the new regulatory board.

Incidentally, the director general in the DGH was given some regulatory powers in September last year.

There are quite a few instances when the DGH had a run-in with the oil companies. It recently refused to recognise ONGC's gas find in the Krishna Godavari basin off the coast of Andhra Pradesh, which led to ONGC complaining to the oil ministry that the DGH was biased against the company.

The DGH also came under fire from the ministry for increasing the fine for ONGC and Reliance Industries for non-completion of the minimum work on exploration blocks according to the commitments in the production sharing contracts signed with the government.

With fines imposed getting into dispute, the director general of the DGH, VK Sibal, had recently written to the petroleum ministry seeking clarification on his duties and powers.

The ministry on its part has reportedly told Sibal that he does not have the powers to fine a company that has not completed the minimum work.

"The ministry has clipped the wings of the DGH and as good as taken away the few regulatory powers the body had," an analyst said. "This has further boosted the need for an upstream regulator."