Page 9 - AsianOil Week 19

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India rethinks upstream policy amid low prices
The government has convened a committee of energy officials and sector leaders to review the country’s production-sharing contracts
COMMENTARY
WHAT:
New Delhi is looking for ways to boost investment in the upstream.
WHY:
The energy sector has repeatedly warned of cuts to upstream spending
if tax relief is not forthcoming.
WHAT NEXT:
India’s government finally appears ready to listen to calls from the country’s state-run oil and gas developers that some measure of upstream relief is needed during the current downturn in energy prices.
OIL and Natural Gas Corp (ONGC), India’s largest oil and gas producer, appears to have been running a consistent (though mostly unofficial) media campaign over the last few weeks, calling for oil production tax relief and an end to government-set pricing for locally produced gas.
Local newswire PTI has run several reports quoting anonymous company offi- cials on the damage the oil price crash has caused to the major’s bottom line. These came after ONGC chairman Shashi Shan- ker told the Economic Times on April 2 that India’s gas market needed to be deregulated fully in order to prevent certain upstream projects from being mothballed.
Now, the Indian Ministry of Petroleum and Natural Gas has reportedly set up a six-member committee to review existing production-shar- ing contracts (PSCs) in light of the collapse in international crude prices.
Policy rethink
The committee includes representatives from ONGC and OIL India Ltd (OIL) as well as the Directorate General of Hydrocarbons (DGH), former DGH and ministry officials, the Business Standard reported on May 11.
The committee will study ways to increase production, attract new investment upstream
and what changes to existing policy are neces- sary to achieve the first two outcomes.
“Industry needs relief from [tax], royalty and other incentives. The first decision should come in the form of [tax] by removing it, because the Hydrocarbon Exploration and Licensing Pol- icy (HELP) has no [tax] component. The gov- ernment may not tamper with royalty because it goes to the state. The committee should also consider giving a relief on profit petroleum by offering a moratorium,” the paper quoted Hin- dustan Oil Exploration Co. (HOEC) managing director P Elango as saying.
Over the course of April, PTI quoted multiple industry sources as saying that ONGC could not maintain production at older more expensive fields or develop new fields under the current upstream taxation system. ONGC reportedly asked New Delhi to abolish the 20% ad valorem oil industry development (OID) duty when realised oil prices fall below $45 per barrel, waive royal- ties paid on offshore production and halve royalty payments to state governments for onshore production. ONGC has also com- plained about the gas pricing mechanism, with the Business Standard reporting that several other upstream players had voiced similar objections to a system that under- values local production.
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