Oil industry wants contract admin separated from policy

Says distinct processes should also be established for review and approval focusing on the intent of Production Sharing

An association of top energy firms like Reliance Industries, Cairn and BP has demanded separation of oil field contract administration from regulation and policy making to bridge the trust deficit between companies and the government.

Asked by Petroleum Ministry to give views on ease of doing business in the sector, the Association of Oil and Gas Operators (AOGO) said, "A trust deficit between the principals to the contract has of late been the hallmark of Indian upstream sector."

The trust issues, it said, arose "primarily from poor communications, misinformation of other parties winning strategies or assumption of a zero sum game."

This situation has led to micro management, delayed decisions and increased disputes.

To resolve this, AOGO recommended separation of oil and gas field "contract administration and facilitation from regulation and policy making."

"Also, establish distinct processes for review and approval focusing on the intent of Production Sharing Contract (PSC), it said.

The Ministry, it said, should outsource financial issues to non-contract administration authority to avoid cost recovery and investment disputes.

Stating that the Ministry needs to establish an overarching objective for the Indian upstream oil and gas exploration and production sector, AOGO said the same should be enshrined in contracts and ensure that any disputes or issues is resolved in consonance with those objectives.

Pitching for flexibility in contracts, the association said, "For a commercial contract to succeed, particularly in the area of an exploration activity, and where there is premium on efficiency and time is of essence, it is important that that the contracts retain an operating flexibility.

"Greater rigidity has in-built mechanism for delays, inefficiencies and costs."

The tendency of recent times to reduce the flexibility of decision making of approving authorities has taken Indian upstream several notches lower in the ease of doing business, it claimed.

"To retain an efficient and operable contract, flexibility must be retained, and ease of management achieved by separation of the responsibilities of administration from regulation and policy making," AOGO said.

This, it said, will enable decisions to move much faster and bottlenecks to be negotiated faster and more efficiently without other conflicting factors.

AOGO also pitched for gas-to-gas competition for pricing of domestic gas and said "government needs to take immediate steps to propose a time bound roadmap to achieve the same.