Govt's 60% oil block sell-off plan may hit dual contract roadblock

Govt plans to sell 60% stake in 15 fields of ONGC, Oil India to rope in private firms as part of production enhancement policy

The government’s plan to farm out a 60 per cent stake in about 15 fields of Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) to private players might lead to a dual system of contracts.

According to a person in the know, private players will be offered participating interests in the fields based on a revenue-sharing model, while ONGC and OIL will hold stakes in them based on earlier contracts.

The two state-owned companies may have to continue to pay royalties and cess.

This is a major dilemma before the policymakers as to whether two parties can have separate sets of contracts for the same fields.

The Directorate General of Hydrocarbons has reportedly zeroed in on 15 fields — 11 of ONGC and four of OIL — including ONGC’s four major oilfields in Gujarat like Kalok, Gandhar, Santhal, and Ankleshwar.

These 15 are estimated to have a cumulative reserve of 791.2 million tonnes (mt) of crude oil and 333.46 billion cubic metres (bcm) of gas.

The plan to rope in private companies is part of the government’s production enhancement policy.

“The production enhancement policy will have two options. One will be giving stakes to private players and the other one will be assigning service providers so that production can be increased from these fields. Our aim is to bring down imports by 10 per cent by 2022,” said an official.

However, the government is yet to come up with a Cabinet note in this regard.

According to reports, those who bring in technology will get the tariffs they bid for in return for increasing output.

More than 40 fields of state-run producers have been identified for production enhancement through the technical services model.

“In the nomination blocks, the government is not getting a share of revenue or profit petroleum. Instead, companies pay cess, royalty, and corporate tax. That is why the tradition of sharing of under-recoveries by upstream companies came. I feel that instead of giving the most lucrative blocks to private players, those areas which need advanced technologies to boost productions should be given to them,” said R S Sharma, former ONGC chairman and head of the Hydrocarbon Committee of the Federation of Indian Chambers of Commerce and Industry.

There had been moves to privatise oilfields earlier also. In 1997, before the introduction of the New Exploration and Licensing Policy, blocks such as Panna Mukta Tapti were given for operations to a consortium of Reliance Industries and British Gas, in which ONGC held a minority stake.

Similarly, the government had given 30 discovered small fields owned by ONGC and OIL to private players last year. Those have estimated reserves of 24.8 mt of crude oil and 19.9 bcm of gas.