Govt To Unveil Uniform Licensing Policy For Oil & Gas Sector

Govt To Unveil Uniform Licensing Policy For Oil & Gas Sector

Having tasted some success from auction of coal blocks, the NDA Government is keen to revive the uniform licensing policy (ULP), a legacy of the UPA Government. This will be a common framework for all hydrocarbon acreages and also include offering unconventional natural resources like shale oil and gas to explorers. Under this policy, the Petroleum Ministry has pitched for a revenue sharing model on which the contractual system between the Centre and explorers will be based, instead of the prevailing profit sharing or cost recovery mechanism. Also all the natural resources will be offered through competitive bidding.

According to official sources familiar with the development, the Petroleum Ministry has floated a Cabinet note for seeking comments of all the stakeholders on the matter. Also they further informed that the Government is keen on shifting to the revenue sharing model under the ULP as in this regime the share of revenue to the Government will commence from the first day of production, unlike the present cost recovery model where profit to the Government starts only when all contract costs have been recovered.

The revenue sharing model had been strongly advocated by the C Rangarajan Committee, which was formed by the UPA Government. It had suggested doing away with the existing cost recovery mechanism, as it was one of the main reasons behind conflicts between the Comptroller and Auditor General of India (CAG) and big private players in the exploration and production of crude oil sector.

At the same time, another panel on energy security formed by the then UPA Government in 2013, and headed by former Petroleum Secretary Vijay Kelkar, had opposed Rangarajan Committee’s recommendation of junking the cost recovery model. He had felt that by adopting the revenue sharing model, investors interested in starting exploration activities in India may feel discouraged.

The UPA regime however had strongly batted for the revenue sharing model, but could not implement it on time, and soon after it was replaced by the NDA at the Centre. Now, sources said, the NDA Government has shown interest in the ULP and is keen on adopting the revenue sharing model.

A senior official told The Pioneer that though both revenue sharing and cost recovery models have their benefits, the Government is keen to implement the revenue sharing model, as it feels this gives more scope for transparency, a favourite catch phrase of the current regime. Also the ULP will help the Government achieve the broad objective of efficiency in oil field operations and at the same time conserve hydrocarbon resources, sources added.

Further to this, the ULP will ensure that there is uniformity in contractual provisions for exploration and production of all kind of hydrocarbons as well as in individual acreage, since operators would have freedom to explore all types of hydrocarbon resources. At the same time it will help remove impediments on account of multiple operators thus expediting exploration.

The revenue sharing model for which the Government is pitching, would not be directly sensitive to fluctuations in costs in determining the Government’s profit share, unlike the existing profit sharing system. The new model enhances the incentive for the contractor to keep the costs down.

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