Big sweeteners for small fields on price, taxes

By: | Published: July 17, 2015 1:15 AM

The ministry of petroleum and natural gas would offer explorers ‘market price’ for natural gas to be produced from the 69 small and marginal fields...

nuclear dealSources said petroleum minister Dharmendra Pradhan will seek the approval of the Cabinet Committee on Economic Affairs (CCEA) for the auctioning of these blocks within a week or so. (Photo: Reuters)

The ministry of petroleum and natural gas would offer explorers ‘market price’ for natural gas to be produced from the 69 small and marginal fields to be auctioned shortly. These fields were earlier surrendered by PSUs ONGC and Oil India.

Sources said petroleum minister Dharmendra Pradhan will seek the approval of the Cabinet Committee on Economic Affairs (CCEA) for the auctioning of these blocks within a week or so. They added that in addition to market price for natural gas, explorers would also be offered some tax sops and the contracts would be based on a revenue-sharing model.

This is in keeping with the Narendra Modi government’s strategy of plucking the low-hanging fruit first when it comes to augmenting the country’s oil and gas output.

In order to make these fields attractive, an explorer bidding for the marginal fields on offer would be allowed to combine multiple fields and develop them as a cluster. At the same time, if any of the auctioned marginal fields is in the vicinity of existing asset of any firm, it would be allowed to prepare a development plan in parallel with its old asset.

The explorers can determine the market price for the specified volumes of natural gas produced from these marginal fields by calling bids from buyers. Currently, a few fields of ONGC that are not connected to the gas grid adopt this model to sell gas.

In the revenue-sharing mechanism, explorers would need to pay the government a predetermined amount from day one, based on production levels at the block. In other words, the government’s remuneration is de-linked from the quantum of investment made in developing the block and extracting the hydrocarbons. Under the present regime (applicable for blocks auctioned under NELP), an explorer gets to recover all costs incurred during the exploration cycle.

The current model, under which developers get blocks by bidding the maximum work programme, was criticised by the Comptroller and Auditor General, which said it left room for companies to keep jacking up costs and defer a higher share of profits to the government.

The petroleum ministry wants to go ahead with the revenue-sharing approach, believing it to be transparent and having less room for government interference. In addition, the model would safeguard the government’s interests in the event of any windfall gains arising out of higher-than- estimated output from unexpected finds.

Low-hanging fruit:

* 69 small and marginal fields to be auctioned
* Explorers to get market price for natural gas
* Oil minister Pradhan to take the proposal to CCEA for approval
* Auction model drawn after extensive discussion with explorers
* Contract to offer revenue-sharing model
* Explorer would be allowed to club fields and develop as cluster

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition