Fuelling the oil and gas sector

Oct 01 2013, 22:06 IST
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SummaryFlip-flop in decision making is hurting the industry. The government and the operators must be on the same page

The period between 2009 and 2013 saw the nadir of Indian upstream activity. In 2009, production started at two of the largest discoveries in India—KG-D6 and Mangala. Everyone had predicted the sunrise of Indian gas and oil, with gas production doubling and the new oil from Rajasthan. More than 200 Production Sharing Contracts (PSCs) had been signed and were being implemented. Oil prices were reasonable. International companies had started looking at Indian upstream with interest. Even the petroleum ministry wanted to be involved in the contract management as it was uncomfortable with the idea of such momentous changes occurring without its guidance.

But soon, the slump came. It was around this time that various scams started surfacing.

The scam-plagued government shied away from defending even those terms of the contracts (PSCs) that it had signed through a transparent bidding process. The CAG rode roughshod over a

weak-kneed bureaucracy managing PSCs. The junior officers implementing PSCs could not find any senior to support and defend their legitimate decisions. Decision-making had stalled.

Decisions that could have led to increased exploration and production, new discoveries or continuation of production in the existing areas were waylaid on frivolous pretexts. 'Zero decision', or not taking one, became the safest bet.

Even the obvious decisions like more exploration in the existing producing fields took years to be cleared. Worse, officials added additional punitive conditions beyond the contract requirements—just to be doubly safe. Discoveries, development plans and declarations of commerciality for gas, etc, were not cleared under rather simplistic fig leafs like “gas development at a (artificial) price of $4.2/mmBtu”. This happened even as the country imported LNG at over $10/ mmBtu. The industry had come to a standstill. The final result is that only a handful of the 200+ PSCs signed are in operation today. The sad fact is that all this happened in a country that is energy deficit and forex constrained. The situation was exacerbated by factors that were within the control of the administration.

The AOGO-A T Kearney Index of the Attractiveness of India as a Global Upstream Destination slipped. With a possible score of 5, (Minimum 1, maximum 5, average 3), India made it to 2.7 last year. This was despite boasting of the best PSC terms, most transparent bidding system, level playing field, tax benefits, etc.

The number of bids per block was propped up only by “S” (small) blocks,

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