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Contractors pay on windfall gains
Petroleum and Natural Gas Minister Dharmendra Pradhan has given details of reforms in Exploration and Licensing Policy for Enhancing Domestic Exploration and Production of Oil and Gas.
He gave details on 21 Feb 2019 in Delhi.
The Main highlights:
Increasing exploration activities in unexplored/unallocated areas.
In basins (Category II and II basins) with no commercial production, blocks would be bid out exclusively on the basis of exploration work programme without any revenue or production share to Government.
Royalty and statutory levies, however, will be paid by exploration contractor.
In case of windfall gain, the contractor would be sharing revenue with the Government on a graded scale ranging from 10% to 50% on incremental revenue over US$2.5 billion in a financial year.
For unallocated/unexplored areas of producing basins (Category I basins), the bidding will continue to be based on revenue sharing basis but with more weightage to work programme (70% weightage to work programme and 30% weightage to Revenue share). An upper ceiling of 50% on biddable revenue share at Higher Revenue Point (HRP) has also been prescribed.
The policy also provides for shorter exploration period: three years for onshore/shallow water blocks and four years for deep water blocks.
To incentivize early production, concession in royalty by 10% in Category I basins, 20% in Category II basins and 30% in Category III basins will be given if production is commenced within four years for onshore and shallow water blocks (up to 400 meters of water depth), and five years for deep water (beyond 400 meters but up to 1500 meters of water depth)/Ultra-deep water blocks (beyond 1500 meters of water depth) from the effective date of contract.
Contractor will have full marketing and pricing freedom for crude oil and natural gas to be sold at arm’s length basis through transparent and competitive bidding process.
Marketing and Pricing Reform for Natural Gas
To incentivize enhanced gas production, marketing and pricing freedom has been granted for those new gas discoveries whose Field Development Plan (FDP) is yet to be approved.
Fiscal incentive in the form of reduced royalty rates by 10% is also provided on additional gas production from domestic fields over and above normal production under business as usual scenario.
Production Enhancement Scheme for Nomination fields
To enhance production from existing large nomination fields of ONGC and OIL, enhanced production profile will be prepared by both Public Sector Unit.
For production enhancement, and bringing new technology and capital, National Oil Companies (NOCs) will be allowed to induct private sector partners.
To increase production from marginal/small nomination fields, two-fold actions are prescribed.
Firstly, some of the fields will be allowed to be retained by NOCs based on objective laid down criteria.
For rest of the fields, NOCs will be allowed to induct private sector partners including by farming out, joint venture and bidding out.
These selected fields will be geographically clustered and will be offered for bidding through international competitive bidding on revenue sharing basis.
Measures will be initiated for promoting ‘ease of doing business’
Setting up coordination mechanism under Cabinet Secretary to expedite inter-ministerial approvals/clearances.
Simplification of approval processes including web based single window system and detailed Standard Operating Procedures (SoPs).
Strengthening of DGH including delegating of powers for effective contract management and expediting approvals.
Alternate dispute resolution mechanism through a Committee of eminent persons/experts to avoid arbitration.
Expected Benefits:
Massive boost to exploration activities with greater weightage to exploration work programme, simplified fiscal and contractual terms;
Early monetization of discoveries also by extending fiscal incentives;
Incentivizing production including through marketing and pricing freedom;
Induction of latest technology and substantial capital;
More functional freedom to NOCs for collaboration and private sector participation;
Streamlining approval processes and promoting ease of doing business. fiinews.com
