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When P Chidambaram announced the New Exploration Licensing Policy (Nelp) in his Budget speech of 1997-98 — he was then finance minister in the United Front government — he had cited the need to reduce India’s dependence on crude oil imports as the policy’s raison d'être.
However, 16 years later, the share of imports in domestic crude supply has only grown. While Nelp was expected to ramp up India’s domestic hydrocarbon exploration and production, the policy has failed to achieve its objectives in the current form. According to experts, it needs a thorough overhaul.
For one, the government should sort out issues such as faulty contracts, poor quality of geological data, and delayed clearances before Nelp-X is introduced. The government had awarded 261 blocks till March 2013 under Nelp where investment worth $20 billion have been made. While the policy has been successful in initiating the process, a few blocks have been brought into production.
There has been a consistent decline in the number of production-sharing contracts (PSCs) signed after Nelp-VI as industry’s interest waned. The government offered 57 blocks in Nelp-VII. Industry bid for only 45 and signed 41 PSCs. In the next round, only 36 of the 70 blocks offered were bid ,while 32 PSCs were signed.
The situation turned worse in the last round (Nelp-IX) with only 19 PSCs getting signed even though 34 blocks were offered.
Under Nelp, blocks are awarded through international competitive bidding based on a bid evaluation criteria, which has been modified under different rounds and includes a committed minimum work programme (MWP) and a fiscal package (profit petroleum and cost recovery limit).
The companies have invested $21.3 billion in blocks awarded under Nelp, including $12.5 billion in exploration and $8.8 billion in actual development. However, data obtained from the oil ministry shows investment in exploration has reduced from $3.6 billion in Nelp-I to $1.8 billion in Nelp-IV and $122 million in Nelp-VIII.
There has been no investment on actual development after Nelp-IV held in 2003. Not surprisingly, in July 2013, the United Progressive Alliance government officially accepted: “The performance of Nelp Blocks has been far from satisfactory due to a variety of reasons, which is evident from the fact that of 110 discoveries announced under Nelp, only six are presently under production.”
Experts say there should be separate PSC models for different kinds of blocks, including offshore, onland, deep-water and acreages. Each block has different requirements, issues and risks which cannot be addressed by one model PSC.
Also, the government must ensure blocks being bid are free from clearance hurdles. “Policy, regulatory and fiscal regimes, have often been blamed for lack of success of the Nelp allocations going into production in India. However, geology plays the most important role and the fact remains that there have been a few big discoveries in India in recent times. The government is having extensive consultation with key stakeholders to set right the challenges faced by investors in the current licensing regime before launching the next round of Nelp bidding,” said Debasish Mishra, senior director at Deloitte.
Former ONGC chairman R S Sharma says the twin issues of administration of PSCs and performance audit by Comptroller and Auditor General have significantly dented investors’ interest. “Decision-making process in the Directorate General of Hydrocarbons and the ministry had slowed after surfacing of controversies and corruption allegations a few years ago,” he said. The ministry has now worked out a model revenue-sharing contract for future blocks and stakeholder comments are being analysed. Under the new regime, the contractor will have to share the government’s share of revenue from Day-One. The existing PSC allows a contractor to recover capital expenditure before sharing revenue.
