Need for more transparent oil exploration regime: Jaipal Reddy

India needs a simpler, more transparent and less intrusive regime for expediting oil and gas exploration, Oil Minister S Jaipal Reddy has said.

Updated: Oct 25, 2012, 17:45 PM IST

New Delhi: India needs a simpler, more transparent and less intrusive regime for expediting oil and gas exploration, Oil Minister S Jaipal Reddy has said.

The world's fourth-biggest oil importer wants to expedite domestic oil and gas hunt to cut its ballooning import bill and widening budget deficit, but its more than a decade-old New Exploration Licensing Policy (NELP) has met with lukewarm response from global biggies.

"A simpler, more transparent and less intrusive regime for expediting the exploration of the sedimentary basins of the country is the need of the hour," Reddy said at the World Energy Forum in Dubai.

Nine rounds of auction under NELP since 1999 have been lacklustre with global biggies staying away because of issues like tight regulations on pricing, delays in getting approvals and changing fiscal regime.

Reddy, whose speech was officially released here, said that before the next round, the government plans to put in place a new exploration licensing regime.

"A high level expert committee has been constituted, with the task of suggesting improvements to the policy. We are confident of announcing the new policy in the next few months," he said.

The committee headed by Prime Minister's Economic Advisory Council Chairman C Rangarajan is expected to submit recommendations on revamp of the exploration policy as well as the terms of contracts signed by companies to explore and produce oil and gas in next few days.

Its suggestions would be taken to the Cabinet for approval. Once Cabinet clears the changes, the 10th round of NELP would be launched.

"Nine rounds of NELP have resulted in 254 contracts and 114 hydrocarbon discoveries," he said urging oil majors to take advantage of the new policy regime and enhance their engagement and investment in India.

Current Production Sharing Contracts (PSCs), signed under the NELP of 1999, provide for explorers to first recover all of their capital and operating expenditure from oil and gas revenues before sharing profits with the government as per a specific formula.

The model has come in for criticism from the CAG as it provides incentive to explorers to delay government's maximum profit take.

The Rangarajan panel may suggest moving to a production- linked payment regime where explorers may be asked to bid for a percentage of output they would share with the government. The firm offering the maximum would win a block or area.

Reddy said that at a global level there was huge inequity among nations in terms of prices of both oil and gas.

"The price difference between Brent and WTI prices has been, at times, as much as USD 25 per barrel," he said. "Governments in developing countries, including India, cannot reduce subsidies below a point since they have to be sensitive to the minimum needs of poor people."

He said the increasing role of speculation and paper barrels is a "troubling phenomenon" as it contributes to sustained high prices.

"This neither helps the producers nor the consumers of oil and gas. An appeal needs to go out from this Forum for a concerted global effort to address these problems," he said.

He stated that fossil fuels cannot be wished away but a lot can be done to mitigate their environmental impact and make them cheaper.

"Energy, after all, is an integral driver of growth and development, particularly in developing countries," he said.

"Providing easy access to energy at affordable prices in an environmentally sustainable manner is a major challenge that confronts policy planners today.

"The question critical to the world economy is: are we making sufficient investments for ensuring production of the incremental quantities of oil and gas required in the days ahead? The answer to that question must necessarily be in the affirmative if the global economy is to be in sound health," he said.

He called for countries pooling their intellectual and financial resources to achieve a paradigmatic breakthrough in the field of non conventional energy.

India's energy demand, he said, is expected to grow by 3.2 percent per annum from now till 2030.

Stating that the single most important development in world energy scenario was the emergence of shale gas as a major alternative to conventional hydrocarbons, Reddy said shale gas is already acknowledged as a game changer in North America.

"We, in India, are pursuing a two pronged approach with regard to Shale Gas -- to acquire shale gas assets abroad and to explore and produce domestically," he said, adding that a draft domestic policy for shale gas exploration has been formulated and comments of stakeholders have been sought.

"We will soon come up with sustainable policy guidelines which are in conformity with the environment protection laws," Reddy said.