Column: Reigniting energy project development

Jul 08 2014, 01:16 IST
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SummaryA market-driven pricing framework for the supply-chain is the reform the sector needs the most

Over the past decade, the international investor community closely watched the development and delivery of two global-scale upstream projects in India—the gas-rich fields off the coast of Krishna- Godavari popularly known as the D6 project, led by Reliance Industries Ltd, and the onshore oil field discovered and developed by Cairn Energy. The fact that both projects were also subject matter of secondary international investment—over $7 billion in the first project by energy giant BP for a 30% stake and the latter being majority acquired by the Vedanta Group with investment of close to $9 billion—illustrates the scale of investment that energy projects involve, both at the greenfield development stage and subsequent brownfield acquisitions. Developments for both projects raised policy and regulatory issues; quite logical, since

India was experiencing such large-scale natural resource development for the first time since the opening of state-owned Bombay High in the late 1970s.

Similarly, the build-up of the knotty issues across the entire energy supply chain and continued failure to resolve several and half-way resolutions for others has culminated in creating a spaghetti bowl that requires deft unravelling for reigniting development of the energy sector. Priority of resolution should be to the big three challenges: first, deciding the role of the government in the determination of “highly taxed” fuel prices, both for subsidy-based diesel and for domestically-produced natural gas; second, for the licensing framework for production sharing contracts; and third, putting the tax genie back into the box to end

the ongoing uncertainty and litigation.

A transparent, market-driven pricing framework is the significant policy reform which, if unveiled, could facilitate long-due and much-discussed reforms for the Indian natural gas market and finally end the misery of the downstream industry that has been locked in with controlled prices for diesel, LPG and kerosene. But it may be too optimistic to anticipate such announcement in the upcoming Budget as the incumbent government has had less than six weeks to assess the existing gas pricing framework for improvisation.

The upstream industry anticipates key announcements in the Budget, including a roadmap for the bidding of hydrocarbon acreages, either under the tenth round of the existing NELP or by transitioning to an Open Acreage Licensing Policy regime under which acreage will be available round the year instead of cyclical bidding prevalent under NELP. It will also be relevant for the government to set out an unequivocal policy framework on the existing cost-recovery based

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