NELP-X: A primer

All you need to know about the tenth round of India's New Exploration Licensing Policy

What is NELP?
NELP or the New Exploration Licensing Policy is a scheme launched by the government of India to accelerate the speed of hydrocarbon exploration and production in India. NELP is currently in its 10th round. The first bids under NELP-I were invited in January 1999 for a total of 48 blocks and for the first time in India's hydrocarbon exploration history, production sharing contracts were signed after offering blocks (onshore, shallow water offshore, deep water offshore) for competitive bidding. Subsequently in the last 15 years, the government has conducted nine NELP rounds with several PSUs and private companies participating in the process. NELP allows up to 100% participation by foreign companies and gives participating companies several incentives such as tax holidays for a period post commercial production etc to lure bids.

 
What's been the progress?
So far, from round one to nine, 302 blocks have been given out for exploration. Of these, 128 have resulted in discoveries. An investment of $20 billion has been committed on blocks given out, although half of this investment has been on Reliance Industries’ KG-D6 block alone according to reports. But the development and exploration in the fifth, sixth and seventh rounds will be completed this year so the figure of investment is likely to go up further.
 

Success or failure?
While there is no doubt that NELP has been successful in giving the oil and gas sector a thrust, resulting in discoveries such as RIL's KG-D6 block and Cairn India’s Barmer fields, 15 years down the line the fact that only six blocks have started production also suggests its implementation failures. Nonetheless before the implementation of NELP, barely 11% of India's sedimentary basins area was under exploration. That increased to 50% after NELP-VII according to petroleum ministry data, and the target is to increase coverage to 80%.

 
The key challenges
The industry’s interest in NELP rounds has been on the wane. While NELP-VIII, where 70 blocks were on offer received only 36 bids, in NELP-IX most global explorers stayed away from putting in bids leaving the round to be largely supported by PSUs. Investors point out many concerns including faulty production sharing contracts, perception about poor quality of reserves, flip flops in government regulation on gas prices and marketing terms, lack of clarity on tax and cost implications as well as delays in getting clearances which has resulted in global giants like BHP Billiton relinquishing nine blocks late last year. 

 
NELP-X: What's in it?
Prime Minister Manmohan Singh unveiled the 10th round of NELP on Sunday putting 46 to 60 blocks covering 166,053 sq km on bid. The final number will be decided depending on how many inter-ministerial clearances are received. These include 17 on-land, 15 shallow water and 14 deep water blocks. On offer are also areas that the government had reclaimed from RIL and Cairn India. The 10th round has the second highest blocks on offer and contrary to the PSCs or production sharing contracts model followed till date, the government could be following a revenue sharing model based on the Rangarajan Panel recommendations, although clarity is yet to emerge on the same. This is likely to be the last round of NELP as India could soon begin moving towards the Open Acerage regime where bids can be submitted for blocks at any time following requisite procedures. A doubling of gas prices announced ahead of NELP-X could recover bidder sentiment and unlock potential interest in several other reserves that were considered uneconomical at current prices, said Swarnendu Bhushan, Research Analyst at Elara Securities to the Economic Times.