JANUARY 6, 2017

By TIOL Edit Team

PUBLIC Accounts Committee (PAC) has done well to highlight how Government's 17-years indecisiveness in concluding a production sharing contract (PSC) harmed national energy security. The delay relates to an offshore medium-sized, hydrocarbons field named Ratna and R Series (R&RS).

In a report presented to Parliament on 16th December 2016, PAC says it "seriously deprecate" this delay which has "directly compromised the national interest on energy security." It has called for "stringent action" against authorities who contributed to the delay that ended on 10th March with Cabinet Committee on Economic Affairs (CCEA) handing over the field to its discover, Oil and Natural Gas Corporation (ONGC).

ONGC discovered R&RS field in 1979 and started producing oil from it in 1993 when the Government decided to assign this field to private sector through bidding competition. ONGC stopped production next year. The Government awarded this field for undertaking further E&P work to Essar-led consortium in March 1996. The letter of award could not fructify into PSC due to legendary red tape.

This is not a solitary case. Nor it is for the first time that a Parliamentary panel has voiced concern over delays in grant of approvals.

In August 2016, Parliamentary Standing Committee on oil and gas in its report on coal bed methane (CBM) flagged the issue.

The Committee observed that out of 18 CBM blocks relinquished by the operators out of total 33 allotted blocks, five CBM blocks were surrendered due to delay in grant of statutory licenses.

Companies require 30 clearances to start work on their CBM blocks. Of the 30 clearances, 11 are granted by the Central Government/its agencies and the remaining 19 are issues by the States/their agencies. From exploration to production phase, average gestation period of a CBM block is 13 years assuming timely grant of clearances.

As put by the Committee, "The delay in granting of clearances adds to the time delay and cost of CBM extraction thereby further affecting the viability of CBM. The Committee, therefore, recommends that the Ministry may develop a mechanism to facilitate timely grant of clearances by taking state governments onboard in order to expedite the CBM operations in the country."

The country's Oil & Gas sector has earned notoriety for being one of the most difficult areas of doing business. Ease of doing business does not exist in this sector. This fact is substantiated by several instances of companies surrendering licences for exploration and production (E&P) bagged through tendering competition. And when the sole reason for surrender is delay in securing pre-work approvals, it certainly calls for drastic action.

It is here pertinent to cite the case of global natural resources multinational, BHP Billiton. In 2012, Australia's BHP invoked force majeure in 10 western offshore blocks due to delay in security clearance by Naval authorities.

Of these seven were JVs with GVK oil & Gas Limited, which is a subsidiary of GVK Power & Infrastructure Limited (GPIL).

As put by GPIL, the JVs could not complete stipulated exploration work in six of these blocks (MB blocks) "due to denial of access by the Indian Navy, resulting in Force Majeure." The JV surrendered these blocks to the Government in January 2014 in view of "access problem." The 7th one, a Kerala Konkan block, was also surrendered on account of low prospectivity.

BHP also surrendered three remaining blocks in Mumbai Offshore in which it held 100% stake owing to inability to gain unencumbered access to explore and produce hydrocarbons in these blocks.

Such surrender is different from relinquishment of licences mid-way in the exploration phase either due to delays in securing extensions or fresh approvals or due to low prospects of making discoveries.

The Government must effectively resolve the issue of delays if it wants to achieve goals it has set for itself. The Prime Minister has pitched for reducing crude imports by 10% by 2022 on a couple of occasions. The country at present meets more than 75% of its crude requirement through imports.

Similarly, the Minister for Petroleum and Natural Gas, Dharmendra Pradhan, recently mooted that the country should increase share of natural gas in energy-mix from 6.5% to 15%.

To improve national energy security & reduce trade deficit, it is important to avoid delays across the entire value chain from award of licences to renewal of concession period. Even contractual disputes among companies and between oil and gas field operators and the Government should be resolved in a time-bound manner. This would help reduce business uncertainty & improve investment climate.

And this approach should be extended to other energy sub-sectors notably hydro-electric power projects, which provide clean energy and help curtail import of coal and gas.

Let energy sector be selected as thrust area of good economic governance.