In a move believed to have been driven by a desire to impart more professionalism and objectivity to the functioning of the upstream oil regulator, the finance ministry has pitched for its direct budgetary funding and consequent statutory status.
If North Block?s proposal passes muster with the Cabinet, it would mean that the Directorate General of Hydrocarbons (DGH) will have to depend on the finance ministry for funds, instead of the petroleum ministry, to which it is currently attached.
Sources say the North Block wrote to oil ministry calling for statutory status to DGH as it performs sovereign functions that are technical in nature. ?The finance ministry feels that rather than being funded by the Oil Industry Development Board (OIDB), the DGH should be funded through the government’s own budget as is the case with other independent regulatory authorities,? said an oil ministry official.
The oil ministry has responded that it was in favour of maintaining status quo and is awaiting further feedback from the finance ministry. Sources say the oil ministry’s finance wing is in favour of the finmin proposal, but the exploration wing wants to maintain status quo.
If funded through the budget, the DGH will be required to form a board of directors and appoint professionals in key positions. Currently, Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) fill up most of the top positions in the regulator.
The DGH, established in 1993, is sustained through grants from the OIDB and its budget for 2013-14 is around R110 crore. The OIDB, for the record, banks on grants from the Consolidated Fund of India, which, inter alia, benefits from the oil cess. However, the allocations to OIDB from budgets have been quite low ? just R900 crore over the last four decades ? and the board derives income mostly as interest on loans given to oil companies.
Currently, among major Indian regulators, Sebi and Irda fend for themselves through fee charged for their regulatory services, while Trai?s demand that a portion of the revenue realised by the government through licence fee and spectrum user charges be earmarked for it has not been accepted and the telecom regulator continues to be funded from CFI.
Sources said DGH officials are also paid salaries and perks that PSU employees earn as they are staff deputed by both the oil PSUs ONGC and OIL. Also, moving the DGH finances to the budget will open the DGH up to Comptroller and Auditor General scrutiny.
The oil ministry is of the view that the funding of the regulator is being conducted as per the provisions of the OIDB Act and that any changes in funding are not necessary. Also, large portions of the exploration and production (E&P) sector are supervised by other bodies like the Oil Industry Safety Directorate (OISD) and the environment ministry.
DGH has been entrusted with several responsibilities like implementation of New Exploraton Licensing Policy (NELP), matters concerning the Production Sharing Contracts for discovered fields and exploration blocks, promotion of investment in E&P sector and monitoring of E&P activities. According to the OIDB website, grants released to DGH up to 31.03.2012 were R549.61 crore.
In late 2011, the CAG said that the DGH should be given autonomy in discharging regulatory functions while working at arm’s length with the oil ministry. This is to avoid potential conflict of interest. While the technical advisory functions should be discharged by a body under the oil ministry, regulatory functions should be discharged by an autonomous body that will work with the government.
