India’s upstream oil companies are likely to get easier access to finance and better loan terms for projects as the government is planning to give hydrocarbon exploration and production ?infrastructure status.? Official sources told FE that a proposal in this regard would be taken up by the Cabinet soon.
Exploration and production, along with affordable housing and tourism, will be added to what is known as the ‘Harmonised List of Infrastructure sub-sectors’, according to sources in the finance and oil ministries. This list was originally drawn up by the infrastructure and investment division of the finance ministry. Currently, the infrastructure sectors notified by the government are classified into five broad sectors ? transport, energy, water/sanitation, communication and social infrastructure ? covering a large gamut of sub-sectors, ranging from roads, ports and oil pipelines to solid waste management and educational institutions. Apart from easier access to finance, firms in these sectors are also eligible to issue tax-free bonds and tap into infrastructure-debt funds.
Once exploration and production is added to the infrastructure list, state-run ONGC, OIL as well as private firms such as Reliance, Cairn will find it even easier to access takeout financing and viability gap funding for their projects from the likes of Infrastructure Development Finance Co and PSU banks. Their loan conditions could also be relaxed. Any expansion of the list will have to be okayed by the cabinet committee on economic affairs.
Sources said the requests for being added to this list have been a long-standing demand from all major exploration companies. Last year, the oil ministry sent a request for this from the Association of Oil and Gas Operators in India (AOGO) to the finance ministry. The move comes at a time companies like ONGC are finding it difficult to add new reserves and Reliance Industries is expected to make investments to ramp up production in KG-D6 gas field once the gas price is hiked. Regulators and lending agencies, however, can ease conditions for sectors outside this list as well based on a case-by-case basis. For example, affordable housing already has access to external commercial borrowing and about $2.7 billion worth of upstream projects were cleared by the cabinet committee of investment in its first sitting.
?If the sector is granted infrastructure status, it will be a positive development. One of the biggest advantages upstream companies will have being allowed access to external commercial borrowing through automated routes,? Sumit Pokharna, oil and gas analyst at Kotak Securities, told FE.