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Government ushers in new oil policy to promote domestic production

Government ushers in new oil policy to promote domestic production

With the present government emphasizing on the importance of reducing the fiscal deficit of the country, the government has tried to make changes to different multiple policies in order to achieve that. A similar move has been made to address the problem of extensive oil imports.

The Government of India has decided to overhaul the oil and gas exploration permits, changing the 25-years old policy. In a bid to attract foreign investment and raise domestic output, the government plans to not levy any charge on share of profits on hydrocarbons that are produced from the lesser explored areas. This brings in a discrepancy between the areas that have already been established. As oil producing/are producing massive amounts of oil and the places where oil production has not yet started taking shape.

DETAILS OF THE MOVE

The location of the oil field will not have any impact on the marketing. Also not on pricing freedom for the oil producer in future bid rounds. According to the official notification that had all the rule changes from the Union Cabinet. Oil and gas acreage blocks are to be given on the basis of exploration work commitment.

Oil fields that are Category-I sedimentary basins like Rajasthan and Mumbai Offshore(already established oil-fields) will have to pay a share of revenue. Whereas newer oil-fields will only royalty rates that are Category-II and Category-III.

HISTORY

The New Exploration Licensing Policy (NELP) of 1999 offered maximum work commitment to companies. But they were obligated to share profits that were generated. The NDA government tried to tweak the earlier NELP to Hydrocarbon Exploration Licensing Policy (HELP) in 2017. Wherein they awarded blocks to companies which offered maximum revenue at different levels of prices and production. But the policy failed to bear any fruits.

Moreover, this new policy has been brought in to increase output and to attract foreign players into this industry. Blocks in Category-I basins are to be awarded on basis bided exploration work and revenue share in the ratio of 70:30. Category-II and III will be on international competitive bids based on exploration work program.

The rule changed explained existing contracts. It will also get the freedom to those new gas discoveries whose Field Development Plan (FDP). This will be approved or the first time after the new policy comes into force. Existing contacts that already enjoy the freedoms of marketing and price mechanism will be allowed to continue on the present terms and conditions.

Further, Any additional gas production from the Administered Price Mechanism (APM) fields, reduction in royalty by 10% of the applicable royalty. They will be granted on the over and above business as usual.

 

Reduction in oil production:

This emphasis and renewed interest in increasing the oil production of the country too shape. When we witnessed the lowest oil production by the country in the past seven years. India produced just 20,294 tonnes of crude oil in the first seven months of 2018 from 22,283 tonnes in FY12. The reduced oil production has been forcing India to import more oil from other nations increasing our already inflated fiscal deficit. With how things are going, India looks to hit almost $125 billion in oil imports in the current fiscal year. Therefore, this heavy outflow of funds from the country has caused the government to re-think its oil policy. Also reduce our heavy dependence on crude oil from foreign nations.

 

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