Govt decides to offer pricing and marketing freedom to gas fields: Dharmendra Pradhan

By: | Published: March 10, 2016 12:59 PM

The details of the pricing mechanism are awaited, as the petroleum minister is scheduled to address a press conference later in the day.

Gujarat Iran gas pipelineThe explorers would be allowed to sell gas from difficult fields at market price with a ceiling, Dharmendra Pradhan told the Parliament. (Reuters)

The Cabinet Committee on Economic Affairs (CCEA) has decide on a clutch of reform proposals aimed at giving the much-needed impetus to the country’s under-performing upstream hydrocarbon sector on Thursday. Petroleum Minister Dharmendra Pradhan informed the Parliament that government has decided to unveil — Hydrocarbon Exploration Licensing Policy (HELP) — that would offer marketing and pricing freedom to oil and gas explorers. The government has also decided to bring changes in the crude procurement mechanism by the PSU oil refiners — IOC, BPCL and HPCL.

The explorers would be allowed to sell gas from difficult fields at market price with a ceiling, Pradhan told the Parliament. The details of the pricing mechanism are awaited, as the petroleum minister is scheduled to address a press conference later in the day.

FE reported on its Thursday edition about government rolling out these steps.

HELP would be accompanied by the revenue sharing fiscal regime and not the cost recovery model, which is currently in place. Also, there would be the uniform licence regime, where drilling of all forms of hydrocarbons — from oil to shale gas — could be done under a single contract, a move that would improve the ease of doing business.

The changes would also benefit Cairn India, BP, Essar Oil and GSPC, other players in the country’s hydrocarbon sector and future investors.

In his Budget speech, Finance minister Arun Jaitley proposed to “incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas, which are presently not exploited on account of higher cost and higher risks.” The exploration companies are eagerly waiting for the promised “calibrated marketing freedom” and a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels, as announced by Jaitley.

In the revenue-sharing regime, the bidders will have to indicate the quantity of oil and gas they will share with the government at various stages of production along with the rates. So, the government’s remuneration is delinked from the quantum of investment made in developing the block and extracting the hydrocarbons. Under the present production-sharing contract (PSC) system, applicable for blocks auctioned under all the previous Nelp rounds, an explorer gets to recover costs incurred during the exploration cycle, before sharing profits with the government.

It may be noted that as a precursor to making them the norm for future bidding and contracts, the government had in September last year introduced the revenue-sharing and unform licensing models for 69 marginal fields being put under the hammer. The developers of these fields will also benefit from ‘market-determined prices” sans any government interference. Moreover, the bidders for marginal fields are given the right to sell gas to customers of their choice, unencumbered by the government’s allocation policy.

Meanwhile, PTI has reported that the CCEA has decided to offer the Ratna and R-series fields back to ONGC. The PSU giant ONGC had found and developed these fields but in 1996 government auctioned the asset to Ruias-promoted Essar Oil. Interestingly, although 20-years have gone by, the production sharing contract has not been signed because of bureaucratic red tape.

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