Union minister for petroleum and natural gas, Ram Naik, told The Financial Express that he had the concurrence of the Gujarat government to NELP terms. The oil-rich states had been opposing the NELP because it offers royalty concessions for offshore and deep water blocks.

NELP terms allow oil exploration companies to pay only 12.5 per cent royalty to state governments, compared to 20 per cent of the crude oil price mandatory earlier. The royalty rate for oil produced from offshore blocks is even lower at 10 per cent, while crude oil produced from deep water blocks will attract a concessional royalty of five per cent of the price of the oil for the first seven years.

Oil exploration companies that have been awarded deep-water blocks in the first round of bidding like the Reliance Industries and Niko Resources consortium and the Oil and Natural Gas Corporation (ONGC), will only pay five per cent royalty in the first seven years after they begin commercial production for crude.

The NELP terms also exempt oil exploration companies from paying cess, exemption from paying duty on capital goods imports and a freedom to market the oil. National oil companies get a seven-year tax holiday as a special bonus. The Gujarat government gives its blessings to NELP just as the Union petroleum ministry was getting set to announce the second round of bidding for oil exploration blocks. In the first round of bidding since the NELP came into effect, the Union government had to leave out exploration blocks that came within the purview of state governments unwilling to accept the NELP conditions.

The 10 onshore oil exploration blocks and 26 shallow-water blocks offered to potential investors in August were all in states that had given their nods to the NELP, namely, Arunachal Pradesh, Rajasthan, Uttar Pradesh and West Bengal. The licences for the 12 deep-water blocks offered in the last round of bidding are given by the Union government.