Clarity in gas pricing has led to investor confidence: Dharmendra Pradhan

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Updated: May 29, 2015 9:40:47 AM

Petroleum minister Dharmendra Pradhan talks about the road ahead—from a new regime to auctioning oil and gas blocks.

oil pricingThe petroleum sector witnessed several reforms in the past one year—diesel deregulation, direct bank transfer of domestic cooking gas subsidy and a new gas pricing regime that reduced gas prices from what the UPA Cabinet had approved. What lies ahead? (Reuters)

The Narendra Modi government took charge when the petroleum sector was surrounded by poor investor confidence and several controversial issues—change in domestic natural gas pricing regime, falling output from RIL-operated KGD6, and no clarity in subsidy sharing mechanism between government and upstream companies, among others.

The past year saw the government put in place a new gas pricing formula that gave a price less than what the outgoing UPA approved, diesel being deregulated and domestic LPG consumers started getting subsidies in bank accounts. Though reforms have been introduced, it’s a long walk to achieving energy security. Petroleum minister Dharmendra Pradhan talks about the road ahead—from a new regime to auctioning oil and gas blocks, oil diplomacy and boosting investor confidence in the sector—in an interaction with Siddhartha P Saikia. Excerpts:

The petroleum sector witnessed several reforms in the past one year—diesel deregulation, direct bank transfer of domestic cooking gas subsidy and a new gas pricing regime that reduced gas prices from what the UPA Cabinet had approved. What lies ahead?

We are working towards bringing policy clarity for auctioning oil and gas blocks in the next round. We would soon unveil the new bidding process. There are 2-3 big reforms included in this. For instance, what kind of financial sharing model should be in place to boost investments. The blocks would be given out through open acreage model and there would be a uniform licensing policy, where an explorer can take out any form of hydrocarbon from the block under a single licence. These issues have been discussed in detail with stakeholders and the ministry has formulated a new policy regime; we would launch it in the current financial year.

Do you plan to hold another NELP round?

After open acreage policy is launched, there would not be any need to carve out blocks. The database (NDR or national data repository) is currently being set up and explorers can bid for areas after examining the geological data. It would be an automatic process.

There is a proposal to auction 69 marginal fields to private players. Would these be covered under the policy you have talked about?

The bidding of marginal fields would be separate from the auctioning regime of oil and gas blocks. We have selected marginal fields and my ministry is working towards auctioning them too. We have formulated a policy and sent it for approval by the Union Cabinet. I would be able to spell out details only after the Cabinet approves the marginal field policy. We have made sure the auctioning of marginal fields regime is attractive and investment friendly. We will launch it shortly.

The new domestic gas pricing formula has lowered the price of the commodity than the formula approved by the UPA. Are explorers happy?

Domestic gas price has been aligned to market dynamics. It has brought back investor confidence. I do not think any explorer is unhappy. Nobody has raised any complaint regarding the new domestic gas price mechanism.

The premium on gas pricing for tougher areas is yet to be unveiled. What is the formula being discussed?

We have sent our proposal to the finance minister. The finance ministry would decide on this.

Do you expect output from RIL-operated KGD6 to rise?

The production figure from the KG basin that has come to my table shows a constant graph. Because of geological reasons, output from any hydrocarbon asset starts falling after touching a peak. But, for some time, production from KGD6 is constant. It is an indication that there is in place a strategy for maintaining the current production. All hydrocarbon assets see ups and downs. Geological assets have their limitations and the age of a field is tough to predict.

After coming to power, you said oil sector PSUs are not performing. What has changed in the past one year?

Close monitoring and policy protection have helped oil PSUs perform better. We offer them any guidance they require. We have brought down subsidy burden on ONGC, Oil India and GAIL. Clarity has emerged on subsidy sharing. I visited two major hydrocarbon producing regions—Assam and Mumbai offshore—and interacted with the field officers there; they are talented professionals and are working with confidence. I am sure in the coming years the output will increase. The Mumbai offshore region saw an incremental production of 1 million tonnes in the last financial year.

You have been visiting energy-rich countries such as Mozambique and Mexico. What is the strategy to get more energy resources from overseas?

Oil diplomacy is one of the primary focuses of this government. I recently visited Mexico and they have opened the country to overseas exploration firms. I had talks with Mexican ministers of energy, trade and the head of PEMEX.

They need a country such as India which can invest there and also has a big market back home. They are interested to expand energy ties with us, considering the growth potential India has.

Iran has said it would not allow ONGC Videsh to monetise Farzad B fields…

It’s not like that. Last month, our delegation visited Iran. We are making all diplomatic efforts. Now, we have a trading relationship with Iran. Looking into the changing global geopolitical scenario, India would take its call. We are actively engaged with Iran.

What is your long-term vision to achieve energy security?

India is poised to grow by double-digits in the next 5-10 years. This means our energy demand would also increase. Currently, we import about 77% of our crude oil and the Prime Minister has a set a target to take up a mission to reduce it by at least 10%. To achieve this, we need to take few steps—increase domestic output, change the consumption behaviour, move towards gas-based economy, and target the customer base and those who need should get subsidy. We would have to take a holistic approach and simply boosting domestic production would not help. By reducing imports, we would save foreign exchange, which can be further utilised in development schemes. Subsidy diversion must be curbed. We have successfully removed 4 crore bogus LPG connections. My ministry is working on an ambitious plan to achieve the long-term goal and we would unveil it soon.

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