Govt to hold pre-emption right over oil, gas in emergency: Draft rules

The government will hold pre-emption rights over all oil and natural gas produced in the country in any event of national emergency, according to draft rules being framed under a revamped oilfields legislation.

A pre-emption right (or preemptive right) is the legal right of a party - often a government or existing shareholder - to purchase or claim a product, asset, or resource before it is offered to others.

The inclusion of such rights over crude oil - extracted from underground or beneath the seabed and refined into fuels like petrol and diesel - as well as natural gas, which is used for power generation, fertilizer production, CNG for vehicles, and piped cooking gas, is intended to help the government prioritize national interests and ensure public welfare during emergencies. 

The producer of oil and natural gas will be paid a "fair market price prevailing at the time of pre-emption", the draft rules said.

Ministry of Petroleum and Natural Gas has invited comments on draft rules after Parliament earlier this year passed the Oilfields (Regulation and Development) Amendment Bill which replaced outdated provisions from the 1948 Act, to boost domestic production, attract investment, and support the country's energy transition goals.

"In the case of a national emergency in respect of petroleum products or mineral oil, Government of India shall, at all times, during such emergency, have the right of preemption of the mineral oils, refined petroleum or petroleum or mineral oil products produced from the crude oil or natural gas extracted from the leased area, or of the crude oil or natural gas where the lessee is permitted to sell, export or dispose of without it being refined within India," the rules stated.

This right will be exercised by providing a "fair market price prevailing at the time of pre-emption to the lessee by Government of India, for the petroleum or petroleum or mineral oil products or the crude oil or natural gas taken in pre-emption." 

  The rules however did not define what would constitute a national emergency. Industry sources said war or war-like situations - like the one that the country faced in the military standoff with Pakistan - or natural disasters could constitute a national emergency.

"Government of India shall be the sole judge as to what constitutes a national emergency in respect of mineral oils, and its decision in this respect shall be final," the rules said.

The draft rules also provide for oil and gas operators being exempt from their obligations under the Act in force majeure conditions.

Force majeure includes an act of God, war, insurrection, riot, civil commotion, tide, storm, tidal wave, flood, lightning, explosion, fire, earthquake, pandemic and any other happening which the lessee could not reasonably prevent or control, the rules added.