DGH ropes in retired experts to avoid blocks

Written by Pranav Nambiar | New Delhi | Updated: Nov 24 2013, 10:31am hrs
Let the gatekeepers decide which area can be offered for hydrocarbon exploration, rather than bar entry into the blocks after they are auctioned off. This seems to be the message that the upstream oil regulator is sending out, as it plans to co-opt former officials from the defence, environment and forest departments to help in shortlisting blocks for the upcoming tenth round of New Exploration Licensing Policy (NELP) auctions.

In the past we have had cases where exploration in oil and gas blocks have been held up owing to lack of ministerial clearances. Therefore, the upstream regulator has now set up a committee of former officials from the respective government departments to select blocks for auctions to avoid clearance hassles, an official close to the development said.

The Directorate General of Hydrocarbons (DGH) is worried about operators exiting from oil and gas blocks owing to lack of clearances from various ministries and agencies. Australian mining giant BHP Billiton, for instance, has decided to totally exit their blocks, frustrated by a lack of clearance from the defence ministry. BHP is said to have acquired 2D seismic data in each of the nine blocks in the Mumbai basin, but could not carry out further exploration work and had to surrender the blocks. Sources say other international exploration companies like Australias Santos and Italys ENI might also exit their blocks owing to pending clearances.

After the first nine rounds of the NELP auctions, 52 of the 254 blocks auctioned were pending clearance by different organisations such as the defence ministry, environment and forests ministry, external affairs ministry and state governments. India plans to offer as many as 68 blocks for exploration of oil and gas in the 10th round of NELP, which will be the second-highest offering of blocks since the advent of NELP in 1999.

Oil ministry officials said DGH does conduct due diligence before auctioning off blocks, but some of these efforts have been slack in the past. In previous NELP rounds, the DGH has received in-principal permissions from various ministries before they were auctioned off in the NELP.

However, analysts said these are toothless approvals, as they could be easily revoked later. They are mere formalities as the respective ministries have limited data on the block when they are earmarked for auction. However, after blocks are auctioned off, studies are conducted by different ministries like defence or environment, and subsequently objections are raised. By this time the exploration company would have already made substantial investments in exploration efforts, said a former oil ministry bureaucrat.

The Cabinet committee on investments in January and April this year cleared 31 of the stalled blocks for exploration, with close to $16 billion worth of investments riding on them.

However, as some of these acreages were only partially cleared for exploration, it led to the exit or reduced investment commitments on part of the operators. Some 16 blocks were cleared with specific conditions. RIL-BP, for example, has offered to relinquish its partially-cleared KG-DWN-2005/2 block in the KG basin, as it overlaps with defence installments. Cairn India has received the regulatory nod for the pared-down minimum work programme at its offshore block KG-OSN-2009 also in the KG basin.

However, analysts express scepticism over whether the DGH-appointed committee will do the trick. Observer Research Foundation director Sunjoy Joshi said there is a huge difference between being a former official and a functioning official who is in the thick of things.

The government should set up special purpose vehicles for getting pre-clearances in oil and gas blocks and then sell stakes in them to operators, he added.