Oil minister Dharmendra Pradhan is right in describing the new policy cleared by the Cabinet as a paradigm shift. The current cost-recovery policy forced government agencies like DGH and CAG to examine costs of explorers – this led to disputes such as the one with Reliance Industries (RIL) on gold-plating and to a situation in which DGH clearances took a long time in coming. Moving to revenue sharing, which is what the Cabinet cleared, takes care of this. When is the last time the CAG questioned Bharti Airtel or Vodafone’s costs – since they simply share revenues with government, their costs are irrelevant. Not allowing oilcos the freedom to price their gas – they are even told whom to sell it to – was a big deterrent when it came to gas exploration; this has now been freed up. Oilcos couldn’t drill for coal bed methane or shale oil/gas – now they can since the license issued will be a unified one.
So why aren’t oilcos cheering? Because the new policy applies to just 69 ‘marginal’ fields, so marginal that PSUs like ONGC didn’t think it was worth their while to even work them. Pradhan is right in saying one of India’s most prolific fields – Cairn India’s Rajasthan one – was ‘marginal’ to begin with; and with more marketing freedom and less government interference, smaller explorers may well find them attractive and could make big finds. But you can’t bank on a miracle each time, and with oil prices so low, exploration is not very attractive right now. The real revolution will come when Pradhan extends the new regime to all new fields, when gas pricing is freed for all producers, and when existing players can explore for shale oil/gas within their current licenses – these firms are paying the government ‘profit petroleum’ anyway – and not allowing them this freedom means exploration in shale will have to wait for 15-20 years or more till their current licenses are over and can be rebid. That’s a costly wait for an oil-starved nation – if revenue concerns are an issue, this can be discussed so that a solution is found. It is also unfortunate that, so many months later, the ‘premium’ for deepwater gas has not been resolved since fresh exploration depends upon this. And restricting this to only new discoveries is even worse since several discoveries made in the deep waters – including those by ONGC – will not be operationalised till they are viable. And until this is resolved, firms aren’t going to risk exploring for gas in new fields either – in, say, the next exploration round – since they need to recover their existing investments before making new ones. The government is still not confident of taking big reform steps in the oil sector.