Fast clearance of bidding norms under NELP-X to get top priority

The new government looks at the sector as a good opportunity for revenue generation

The departments of finance ministry in consultation with its counterparts in petroleum and natural gas will pitch for fast decision of bidding norms under the New Exploration Licensing Policy (NELP) with uniform licensing across hydrocarbon acreages as one of its priority item for big ticket foreign investment to the new government next week.

According to officials close to development, NELP clearance is one of the priority items   for revenue generation among ready avenues on the cards. Incidentally, this comes handy as both the ministries under the erstwhile government are aware of the views  of the Gujarat government headed by the new prime minister who was the then state chief minister. The Gujarat Government had withdrawn clearance for nine areas offered under NELP soon after giving its approval as the state wanted a share of revenues that the centre will earn  from the produce ( oil and gas) .   

This share of the Centre’s revenue is additional to the royalty at the rate of 12.5% of price realised on the sale of crude oil and 10 per cent for natural gas that currently flows to the state government.NELP-X auction is to be held under a production-linked revenue sharing model wherein oil companies would have to pay the Government an agreed amount, depending on the level of output, and not on the investment in the exploration block.

In fact the move by the Gujarat Government had delayed the NELP X rounds. Meanwhile the fiscal model could not be finalised  also due to recommendations of Kelkar committee report  which suggested continuation with the production sharing contract as the fiscal model for NELP X. According to officials, a quick decision needs to be taken on the proposed fiscal model under the  uniform licensing policy for the NELP round to pick up.

In a bid to attract more global oil majors, it has been proposed to incentivise exploration in NELP-X by exempting royalty payment on offshore oil and gas production. Currently, operators pay a 10 per cent royalty on output from shallow water blocks, while for deepwater areas, the rate is 5 per cent for the first seven years and 10 per cent thereafter. However, royalty for onshore blocks, which is payable to the state in which the areas are located, would continue.

In explaining the benefits of  NELP X, officials explained that the uniform licensing policy will ensure uniformity  in contractual provisions  for exploration and production of all kinds of hydrocarbon- NELP and Coal based Methane ( CBM). This is against the earlier policy whereby  NELP was based on production sharing contracts where the government’s share depended on sharing of profit petroleum  whereas CBM is based on revenue sharing basis .  

However given the adverse impact on the dual licensing policy, NELP X is based on uniform licensing policy with  fiscal components like royalty  to be paid to the government . However in order to incentivize shallow and deep water exploration, it is proposed to introduce zero rate of royalty. There will be revenue sharing between the contractor and the government and seven year’s tax holiday from start of production for both oil and gas fields and ten year holiday for ultra deep water blocks. Officials explained the model of NELP is lucrative as there will be no requirement of government audit by CAG  as production monitoring  through field surveillance is considered adequate  It does not harsh fiscal regime like triple state bonuses  along with cost recovery  - signature bonus, discovery bonus and production bonus.