India is heavily dependent on imports to meet its oil and natural gas demand. That calls for expediting domestic exploration activities. But exploration is losing momentum in India. That is a bad omen for the country?s long-term energy security and sustainability of its high economic growth.

The number of blocks offered for exploration has fallen from 57 in NELP-VII to 34 in NELP-IX. The number of bids have also dropped from 45 in NELP-VII to 33 in NELP-IX. Equally dismal has been the record in terms of the number of blocks awarded?from 44 to 16 ?and the production sharing contracts (PSCs) signed?from 41 to 13?between the two NELP rounds.

We have an oversight system in place for the sector, like the petroleum and natural gas ministry, and regulatory bodies like the directorate general of hydrocarbon and the petroleum and natural gas regulatory board. To their credit, the highly risky activity of oil exploration and production was de-risked and incentivised by introducing a new exploration licensing policy (NELP) in 1999 to take advantage of public-private partnership.

However, despite favourable terms and conditions given to major countries worldwide, the bidding rounds conducted so far have met with poor responses. The regulatory bodies could not identify the ailments and arrest the falling investment in E&P activities. The DGH, formed to impart unambiguous guidance and regulation to the sector, seems incapacitated under its apparent accountability to the ministry. Since its inception as an upstream hydrocarbon regulator, the role of DGH has been unclear, as it has increasingly come to be known as the government?s extended technical arm for exploration and production rather than a powerful and independent upstream regulator. Distancing governance from regulation has never gained ground.

The fear of vigilance and the many checks and balances have affected work. Afraid of harsh audit scrutiny and vigilance queries, oil experts and the oil ministry shy away from taking key decisions.

The government?s integrated energy policy noted that the present upstream regulation provided by the DGH was ?neither independent nor comprehensive in a technical sense? and the ?current arrangement needs to be strengthened and made independent?. It is essential, therefore, to strengthen DGH and fortify it with an army of seasoned, experienced and senior functionaries to make the process of decision making quantitatively better but also transparent and objective.

The role of PNGRB as a downstream regulator for the oil and gas sector also needs strengthening and empowerment. PSCs between the government and contractors (private and public) have been a matter of concern. The contracts were conceptualised for aggressive exploration and production in a sector where any business is of high-risk nature, in the physical, commercial and political senses. This is because it is difficult to determine in advance the existence and the extent and quality of mineral reserves as well as production costs and the future price in the world market. In India, PSCs have suffered in terms of proper regulation directives.

Furthermore, as we delve deeper into the finer details of the PSCs, under one significant stipulation, marketing rights of the product were to rest with the contractor. In reality, however, by some unspoken code, the same marketing rights are vested in the government, which is free to choose its customers in the name of gas utilisation policy. Thus, in a very delicate manner, the contractors are immensely dis-incentivised, even though some might rightly argue that government intervention is called for as the gas market is not mature enough to let market forces play.

Many aspects of PSCs call for better scrutiny and revision. From the need to obtain multiple clearances from several ministries leading to inordinate procedural delays and the final exploration licence culminating years after signing the contract, to the unavailability of accurate and freely accessible data on the acreage?a key factor in bidding decisions. There are many technical and administrative glitches. For example, the exploration blocks offered for bidding were not of the size expected by and acceptable to international bidders. Establishment of E&P and archival database is required to offer blocks through the Open Acreage Licensing Policy.

The path to reform is clearly visible. Strengthening the DGH through greater autonomy, fostering a conducive environment to investments through taxation policies and more stability in RBI?s monetary policies are some of the obvious reform-oriented measures in this respect. Reducing complexities in the pricing structure of fuels is also a very potent tool to attract investors.

The petroleum sector is a hot bed for controversies. Exhaustive policy review is needed to introduce a system-oriented framework that is less dependent on human discretion.

The author is director general, Scope