Gujarat withdraws approval for NELP-X blocks

Gujarat wants a share of revenues that Centre will earn from the oil and gas produced: Oil Ministry official

In a setback to the latest oil and gas block auction round, the Gujarat government has withdrawn clearance for the 9 areas falling in the state that are part of the offerings under 10th round of New Exploration Licensing Policy (NELP).

The Narendra Modi-led Gujarat government had on January 16 given its approval for offering 9 blocks in the Cambay basin of the state for offering in NELP-X. But soon after, it withdrew the approval, a top Oil Ministry official said here.

The central government, which as per the Constitution is the owner of both offshore and onland hydrocarbon resource, last month unveiled 46 blocks for offering in NELP-X the first auction round in two years. These blocks are made up of 17 onland areas, 15 shallow water and 14 deepsea blocks. Of the 17 onland blocks, 9 are in Gujarat.

The official said Gujarat wants a share of revenues that Centre will earn from the oil and gas produced.

This share of the Centre's revenue is additional to the royalty at the rate of 12.5% of price realised on sale of crude oil and 10% for natural gas that currently flows to the state government.

NELP-X auction is to be held under a revenue-sharing model where the bidder quoting the highest amount of oil and gas production it is willing to give to the government will get the block.

Gujarat wants a share of this revenue, the official said.

"We are examining the Gujarat government's written communication withdrawing approval for the blocks," he said.

If the issue isn't resolved soon, NELP-X round may get postponed and only a new government that will be formed after the April-May general elections will take a call.

The Cabinet, the official said, is yet to approve the revenue-sharing model. Some like the Planning Commission favour continuation of the current production sharing contract (PSC) framework, which allows explorers to recover their costs from commercial discoveries before sharing profit with the government.

"And now this Gujarat issue will add to the troubles. All these may lead to postponement of the round," he said.

In a bid to attract more global oil majors, Oil Ministry has it proposed to incentivise exploration in NELP-X by exempting royalty payment on offshore oil and gas production.

Currently, operators pay a 10% royalty on output from shallow water blocks, while for deepwater areas, the rate is 5% for the first seven years and 10% thereafter.

However, royalty for onshore blocks, which is payable to the state in which the areas are located, would continue.

A total of 254 blocks have been awarded in the nine rounds of NELP since 1999, the last being in 2012 when 19 blocks were taken up out of 34 offered.