Lukewarm response to new exploration policy

By C.V. Gopalakrishnan

THIRUVANANTHAPURAM, MAY 15. Kochi and Dahej, in Gujarat, will get liquified natural gas (LNG) terminals with a capacity of 7.5 million tonnes per year under partnership between Oil and Natural Gas Corporation (ONGC) and Petronet. ONGC will have 12.5 per cent equity interest for import and marketing of LNG in the country.

To expand its business through profitable ventures, ONGC entered into joint-ventures with Indian and foreign companies.

Other partners in the project are Indian Oil Corporation, Gas Authority of India Ltd. and Bharat Petroleum Company Ltd., with 12.5 per cent equity each. The remaining equity will be offered to strategic partners, financial institutions and the public.

ONGC will bid for most of the 35 blocks which will be offered under the New Exploration Licensing Policy (NELP) and is hopeful that the Government will give it a large share.

Though the Government decided to allow Indian and foreign private sector participation, the response seems disappointing - the exception being the Krishna-Godavari offshore basin where Cairn Energy (formerly Command Petroleum of Australia) is hoping to achieve an annual production of around two million tonnes.

The terms for the lease provide for giving a share of the oil produced to the foreign companies.

The new terms provide for full recovery of the costs of exploration, production and development with unlimited carry forward period on contract area basis. They will be paid the international price of oil for discoveries in the blocks and royalty payment. Half the royalty from the offshore area would be credited to a `Hydrocarbon Development Fund' to promote exploration-related activities. The terms provide for the reduction or exemption of royalty for encouraging deep water exploration. Royalty would be charged at 50 per cent of the prevailing rate for offshore areas for deep waters beyond 400 m bathymetry for the first seven years after the commencement of commercial production.

The terms provide for the freedom of the parties chosen for exploration, marketing of oil and gas in the domestic market.

The lukewarm response from foreign companies may be due to the worldwide phenomenon of lack of interest in exploration. The preference for the soft options in matters relating to oil could be clearly seen from the readiness of the companies, both Indian and foreign, to set up refineries linked to oil fields already under production. Letters of intent were issued way back in the 1980s for seven companies, including Reliance Industries, International Petroleum of Switzerland, Ashok Leyland and others for setting up refineries with an annual capacity of 33 million tonnes, though the progress they have made appears to be very slow.

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