New exploration licensing policy (NELP) in India

New exploration licensing policy (NELP)in Indiaopec_187 174..188

Muhammad Azhar*,**,***,****

*Associate Professor (Economics), Centre of West Asian Studies, Aligarh Muslim University,Aligarh-202002, India**Formerly Reader, Academy of Third World Studies, Jamia Millia Central University, New Delhi, India***Formerly Senior Research Associate, Centre of West Asian & African Studies, School of InternationalStudies, Jawaharial Nehru University, New Delhi, India.****Formerly Consultant, Indian Council for Research on International Economic Relations, New Delhi,IndiaEmail: [email protected]

Abstract

In India, the exploration and production (E&P) activities in petroleum sector had been the protecteddomain of the public sector oil companies.The government of India has been implementing the poli-cies of liberalisation and reforms in the Indian economy for two decades. This was extended to thepetroleum sector also. The exploration policy was also revised and new exploration licensing policywas introduced in 1999. Foreign and private companies were also permitted to participate in theensuing bidding rounds. Hundred per cent foreign direct investment (FDI) was permitted in E&Psector. Many incentives were extended to the investors. The bid evaluation system was made trans-parent, and level playing field was promised to all participating companies, domestic or foreign,public or private. Since then, eight rounds of NELP have taken place. After the ninth round, thegovernment is contemplating to introduce open acreage licensing policy. The article provides anassessment of the New Exploration Licensing Policy in India.

1. Introduction

All petroleum and natural gas resources, both onshore and offshore, are national propertyin India.The oilfield act of 1948 resulted in the nationalisation of all such natural resources(The Economic Times, 2005a). This, in turn, gave the Indian state total control overthis crucial natural resource. In consonance with the economic policy pursued in India,the public sector undertaking Oil & Natural Gas Commission (ONGC) was mainlyresponsible for the exploration and production (E&P) activities relating to the oil and gas(Farooqui, 1999). Later on with the continuous implementation of liberalisation andreforms in the Indian economy, ONGC was rechristened and restructured as Oil andNatural Gas Corporation. The near total monopoly of ONGC in India’s E&P activities of

174

© 2011 The Author. OPEC Energy Review © 2011 Organization of the Petroleum Exporting Countries. Published by

Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

oil and gas continued for about five decades. During this period, ONGC is credited withthe discovery and exploration of many oil and gas fields (Farooqui, 1999). Prominentamong the ONGC’s discoveries has been the Bombay high field. Bombay high field alonehas been contributing over half of India’s total oil production from domestic sources(Venugopal, 1983). ONGC has remained dominant company in India’s upstream sectoraccounting for roughly 71 per cent of India’s oil production in 2007, according to aGovernment of India estimate (Centre for Monitoring Indian Economy, 2008). Whereasyet another state-owned company Oil India Limited (OIL) was the next largest oil pro-ducer, having accounted for approximately 28 per cent oil production during the same year(Centre for Monitoring Indian Economy, 2008). However, since late 1990s, a few jointventure and private companies have also entered the E&P activities in India’s petroleumsector. Reliance Industries Limited (RIL) has been the largest private sector company toenter E&P activities in India’s petroleum sector, hitherto completely dominated by publicsector undertakings namely ONGC and OIL (The Hindu, 2005). Cairn India, a branch ofUK-based Cairn Energy and BG Exploration, has also become yet another private sectoroperators in the industry (The Hindu, 2008). It is expected that in future the role of privatesector in India’s petroleum industry would increase gradually but significantly in bothupstream and downstream activities. However, this has been possible because of thedrastic revision in India’s exploration policy (Mitra, 1992). The factors responsible for therevision of this policy have been:

1. The introduction of the policies of liberalisation and reforms and terminationof the policies of controls and licenses in Indian economy since 1991 (Prasad,2003).

2. The implementation of the policies of liberalisation and reforms in India’s petro-leum sector (Srivastava and Goswami, 1999).

3. The need to attract increasingly higher level of investment in India’s petroleumsector (Ghadar, 1983).

4. Only 30 per cent of India’s total requirement of crude oil comes from domesticproduction, whereas 70 per cent has to be imported from abroad (Joshi, 2004).

5. This results in huge burden on Indian economy and thus urgent requirement foraugmenting the domestic sources of production (Ramachandran, 2004).

6. The high growth in Indian economy and consequent high growth in the consumptionof oil and gas were expected to further aggravate the oil and gas deficit in Indianeconomy (Jayasawal, 2007). Thus, need arose for E&P activities to be paid urgentattention.

7. Not even one fourth of India’s 26 sedimentary basins had been explored to any realextent. Thus, there existed a realistic hope of locating/finding new oil and gasreserves (Birla Economic Research Foundation, 1988).

New exploration licensing policy (NELP) in India 175

OPEC Energy Review June 2011© 2011 The Author.

OPEC Energy Review © 2011 Organization of the Petroleum Exporting Countries

8. There existed significant scope of locating fresh oil and gas reserves in deep offshoreareas (Khera, 1979).

9. The E&P investments carry very high risks, and E&P is highly capital as well astechnology intensive (Joshi and Choudhary, 2006).This required a drastic revision inthe exploration policy.

10. Thus, there was urgent need to attract private investment and FDI in upstream acti-vities in India’s petroleum industry (The Indian Express, 2007). This furthernecessitated the implementation of New Exploration Licensing Policy (NELP).

Moreover, the India Hydrocarbon Vision 2025 aims at (Government of India, 1999a):

● Appraisal of the Indian sedimentary basins to the extent of 25 per cent by 2005, 50 percent by 2010, 75 per cent by 2015 and 100 per cent by 2025.

● Pursuing extensive exploration in non-producing and frontier basins for knowledgebuilding and new discoveries including in deep-sea offshore areas.

● Making available sufficient resources for appraising the unexplored/partly exploredacreages through Oil Industry Development Board (OIDB) Cess, disinvestment andprivatisation, etc.

● Attracting major oil and gas companies by providing internationally competitivefiscal terms and through expeditious evaluation of bids and awards of contracts on atime-bound basis.

● Improving archival practices for data management.● Continued technological acquisition and absorption along with development of

indigenous research and development.

The Government of India decided eventually to launch the NELP in 1997, which effec-tively ended the monopoly of the Indian public sector undertakings in India’s explorationactivities (Government of India, 1999b). Thus, private and foreign participation was per-mitted in exploration activity in India’s hydrocarbon sector restricted to India’s publicsector undertakings for about five decades. However, it was by 1999 that the NELP couldbe launched. Since then, nine rounds of the NELP have already been launched.

2. NELP-1

Under the first round, tenders were advertised for the award of 25 exploration blocks. Thebids for which were finally decided in January 2000. India’s Reliance Industries Limited,in partnership with Niko Resources of Canada, was the largest winner in this round ofbidding by winning tenders to the 12 blocks. India’s public sector undertaking ONGC wasawarded eight blocks, of which three blocks were awarded in partnership with other Indiansector undertakings. British independent Cairn Energy, Russia’s Gazprom, the US firm

Muhammad Azhar176

OPEC Energy Review June 2011 © 2011 The Author.


Mosbacher Energy and Geopetrol of France were awarded with one block each in partner-ship with Indian firms (Association of Oil and Gas Operators in India, 1999).

3. NELP-II

It was announced in 2001. Under the second round, 25 blocks were on offer again. Theseincluded eight deep water blocks on the West Coast and eight shallow water blocks in East(five blocks) and West Coasts (three blocks). It also included nine on-land blocks with twoblocks each falling in Gujarat, Uttar Pradesh and West Bengal and one each in Assam,Orissa and Rajasthan (The Economic Times, 2001). The award process was made moretransparent and investor friendly. ONGC was awarded with 16 blocks. Of the remainingtenders, Hardy Oil of United Kingdom, in partnership with Reliance Petroleum, success-fully bid for the four blocks (India Economic News, 2000). The other blocks were eitherawarded to smaller independent firms or failed to receive bids.

4. NELP-III

During the third round of NELP bids, tenders were invited for 27 blocks. The bids werefinalised, and blocks were awarded in February 2003. ONGC was successful in winning 13blocks, which included five offshore and eight onshore, while a consortium of RelianceIndustries Limited and Hardy Exploration and Production received nine blocks. TheGujarat State Petroleum Corporation (GSPC) was successful in winning one block(Association of Oil and Gas Operators in India, 2002).

5. NELP-IV

India’s public sector undertaking ONGC was again successful in winning the majority ofoil and gas blocks in fourth round of the NELP, which was finalised in February 2004 (TheAsianAge, 2004). Out of the total of 20 oil and gas blocks awarded, 14 were won by Oil andNatural Gas Corporation and its partners. ONGC, on its own, bagged five deep sea oil andgas blocks on the East and West Coasts, whereas ONGC and Hindustan Petroleum Corpo-ration Limited (HPCL) combine received two blocks in Kerala-Konkan basin. ONGC, OilIndia and Bharat Petroleum Corporation Limited (BPCL) consortium won one block eachin Krishna Godavari (KG) and Mahanadi basins. The Oil India and ONGC combinereceived two on-land oil and gas blocks inAssam and one in Rajasthan. ONGC-BPCL wona block in the state of Tamil Nadu, while Gas Authority of India Limited (GAIL) and itspartners received two—one in Assam and another in Tamil Nadu. It should be mentionedthat in addition to ONGC, Oil India, BPCL, HPCL and GAIL are all public sector under-takings. Cairn Energy of United Kingdom won a Ganga Valley inland block on its own.




Cairn Energy also won an onshore block in Cambay basin in Gujarat, in partnership withONGC. The GSPC was reported to have received three inland blocks. The private sectorReliance Industries Limited could win only one block (The Economic Times, 2003). Itshould also be mentioned that in the fourth round, eight coal bed methane (CBM) blockswere also awarded. ONGC and partners bagged five of these, while Reliance IndustriesLimited won the remaining three.

6. NELP-V

The bids for 20 oil and gas exploration fields under the fifth round of NELP were invitedin January 2005 (The Economic Times, 2005b). Six deep sea blocks, two shallow waterblocks and twelve on-land blocks were offered to the public, private and foreign E&P com-panies. Of the deep water blocks, two were on the East Coast, two were on the West Coastand two in the Andaman area. The twelve on-land blocks fell in the states of AndhraPradesh, Arunachal Pradesh, Assam, Gujarat, Maharashtra, Rajasthan, Tamil Nadu andUttar Pradesh. Road shows for attracting investors were held in Delhi, London, Dubai,Houston, Calgary and Moscow. Digital data rooms were set up in Delhi, Houston, London,Calgary and Dubai (Hindustan Times, 2005). Results of the bids for 18 blocks weredeclared in July 2005. ONGC and Reliance Industries Limited emerged as the most suc-cessful bidders. Both the shallow water blocks were bagged by ONGC on its own. WhileONGC, in partnership with ENI (Italy’s biggest oil and gas company) of Italy and withCairn Energy of United Kingdom, bagged another six blocks. Reliance Industries Limitedbagged two deep sea blocks and Cambay on-land blocks on its own. RIL with Hardy of UKwon Krishna-Godavari deep sea blocks, while RIL with Niko Resources of Canada baggedMahanadi basin block. The Oil India and HPCL combine got the Assam-Arakan on-landblock. Niko Resources was awarded one on-land block. A combination of GSPC, GAIL,Jubilant Capital and GeoGlobal Resources received one block in Cambay basin. Further-more, one more block was awarded to GeoGlobal Resources, while one block in Rajasthanwent to the combination of Phoenix Overseas and Birck Beck Investment (The EconomicTimes, 2005c).

7. NELP-VI

The Government of India launched sixth round of NELP in February 2006. This roundoffered 55 oil and gas blocks for bidding (Jayasawal, 2006). These included 24 blocks indeep sea areas, six blocks in shallow offshore and 25 blocks in on-land areas.This was veryambitious auction as the 55 blocks on offer accounted for half the number of blocksawarded in the previous five rounds taken together. The total blocks offered in the sixthround covered a sedimentary area of about 3.55 lakh km2. In addition to these 10 CBM

Muhammad Azhar178



blocks were also on offer. Methane deposits locked in layers of coal were to be explored inthese blocks. Bids from 165 bidders were received for 52 of the 55 oil and gas blocks onoffer in the sixth round. A total of 66 companies including 31 from India and 35 fromabroad took part in the bidding for the sixth round (TheAsianAge, 2006).The Governmentof India approved the award of these 52 oil and gas blocks in February 2007. The publicsector undertaking ONGC was the leading winner by bagging 25 blocks out of the 52,while Reliance Industries Limited received seven blocks. ONGC bagged 12 deep waterblocks, 10 on-land blocks and two shallow water blocks. ONGC was also a minoritypartner with Cairn Energy of UK in one shallow offshore block. Reliance IndustriesLimited was successful in bagging seven deep water blocks. Two other deep water blockswere awarded to Santos. In the shallow offshore category, Focus, GSPC, Petrogas andCairn Energy received one block each. In the on-land category, public sector OIL baggedsix blocks, while Naftogaz bagged three blocks. Essar Oil and GSPC bagged two blockseach. Prize Petroleum and GeoGlobal received one block each (The Hindu, 2007).

8. NELP-VII

Fifty-seven blocks were put up for auction during the seventh round of the NELP in 2007(Joshi, 2007). However, the Petroleum Ministry had to postpone the NELP-VII bid datesthrice. It was done to convince the Finance Ministry to extend tax incentives offered tocrude oil production to gas production also. It should be noted that the Finance Ministryhad put an end to the 7-year tax holiday implying scrapping of the exemption from pay-ments of income tax on natural gas production in 2008–2009 budget. Seventy-five Indiancompanies and 21 foreign oil companies including ONGC, RIL, Essar, BP and BHPBilliton placed 181 bids for 45 exploration blocks. About $1.5 bn minimum investmentwas committed in exploration expenditure in these 45 blocks. However, a dozen oil and gasblocks did not receive any response (The Economic Times, 2008). This included sevendeep sea blocks, two shallow water blocks and three on-land blocks. Furthermore, a deepwater block in Mumbai basin was not awarded by the Cabinet Committee on EconomicAffairs (CCEA) as it found the bid low by the sole bidder Cairn Energy India. Out of the 44oil and gas exploration blocks awarded, ONGC and partners bagged the maximum numberof 20 blocks (The Asian Age, 2008). However, later on, the CCEA cancelled the award oftwo exploration blocks to GeoGlobal Resources (Barbados) Inc., and one block eachawarded to Interlink Petroleum, Moonstone Energy and Ensearch Consortiums underNELP-VII for failing to sign the production sharing contracts (PSCs) despite extentions.

9. NELP-VIII

The eighth round of the NELP was launched in April 2009, but it had to be postponed overthe ambiguity on the availability of tax holidays for natural gas. However, this round was




relaunched after the Finance Minister restored the 7-year holiday from payment of incometax on profits earned from production and sale of natural gas for blocks to be awarded inNELP-VIII. Seventy blocks consisting of 24 deep sea blocks, 28 shallow water blocks and18 on-land blocks were offered in bidding in this round (The Indian Express, 2009a).

Along with NELP-VIII, the Indian Government also offered 10 CBM blocks, whichwas to be awarded by CCEA later.The CBM is simply methane found deep within layers ofcoal. Estimates suggest that CBM potential in India is of the order of 850 billion cubicmeters. Along with NELPs, Government of India has been putting CBM blocks also foropen bidding. CBM blocks were put to auction along with NELP-VIII and was termed asCBM-IV (The Economic Times, 2009a). However, India’s largest oil and gas licensinground did not attract very good response. Only 76 bids were received for 36 out of 70blocks on offer. Out of the 24 deep sea blocks on offer, bids were received only for eight.For 28 shallow water blocks, bids were received for only 13, whereas for 18 on-land blocksonly 10 bids were received for five larger on-land blocks and 37 bids were received for10 smaller on-land blocks. Of the 10 CBM blocks on offer, bids were received only foreight. Reliance Industries Limited, which participated aggressively in previous rounds,abstained from bidding under NELP-VIII (The Economic Times, 2009b). However, it bidfor one CBM block. ONGC, BHP Billiton of Australia, BG of UK and Cairn Energy werethe only notable companies to participate in NELP-VIII. Reliance Industries Limitedsources attributed the Petroleum Ministry’s interference with terms of marketing andpricing freedom in PSCs for the poor response to NELP-VIII, whereas the ministrysources blamed the gas disputes and litigation in Supreme Court of India within the reli-ance family for the poor response. The CCEA in March 2010 approved the award of 33 outof 36 exploration blocks under NELP-VIII. It was decided not to award two on-landblocks, while the award of one on-land block was kept in abeyance. ONGC Ltd. and itspartners emerged as the potential winners in 17 out of 33 blocks awarded. An investmentof $1.34 bn was reported to be committed in oil and gas hunt in NELP-VIII (The HinduBusiness line, 2010).

10. NELP-IX

The ninth round of auction under the NELP-IX was launched in October 2010 invitingbids for 34 exploration blocks. These consist of eight deep water blocks, seven shallowwater blocks, eleven on-land blocks and eight small blocks. The oil ministry has projectedabout $1.1 bn of investments from this round. Most important aspect of NELP IX has beenthe introduction of tax incentives based on investments replacing the existing regime of7-year tax holiday on profits (The Economic Times, 2010a). This has been done to end thecontroversy whether tax benefits were available only to oil production and not to gas. It hasalready been mentioned that the eighth round of NELP had to be postponed over the

Muhammad Azhar180



ambiguity of unavailability of tax holiday for natural gas.And finally, the Finance Ministerhad to restore it.

However, the ninth round (NELP-IX) is expected to be the last round of auction underthe NELP. The Indian government is planning to move towards the Open Acreage Licens-ing Policy (OALP). Under OALP, companies can suggest any block for offer at any time,without waiting for the announcement of the bids by the government as prevalent in NELP.Companies shall be free to choose any block they wish to explore for oil and gas andapproach the government for award. The government will then put up an offer for that par-ticular block and the block will be awarded to the best bidder. However, for OALP tobecome operational, a National Data Repository archiving all E&P data is planned to beestablished by the Directorate General of Hydrocarbon (The Indian Express, 2010).(Table 1).

11. The bid evaluation system

The criteria for evaluation of the bids in NELP were well defined. However, these have beenamendedandimprovedfromtimeto timetomakeitclearandtransparent.Broadlyfourmaincriteria had been evolved by the end of the fifth round (The EconomicTimes, 2005a).

1. The technical capability of the bidder. This was further elaborated with subcriteria:a. E&P acreage held;b. the oil and gas reserves added in the previous 3 years; andc. the actual production in the previous 3 years.

Table 1 New exploration licensing policy in India: an overview

RoundYear oflaunch

Year of awardof bids

No. ofexplorationblocks awarded

Bids awarded to

ONGC/partners

Reliance/partners

Others/undecided

I 1999 2000 25 8 12 5II 2000 2001 25 16 4 5III 2001 2003 27 13 9 5IV 2003 2004 20 14 1 5V 2005 2005 18 8 4 6VI 2006 2007 52 25 7 23VII 2007 2008 44 20 — 24VIII 2009 2010 33 17 Abstained 16IX 2010 2011 (expected) 34 — — —

Source: Ministry of Petroleum and natural Gas, Government of India, New Delhi.




The technical criteria were assigned six points.

2. The financial standing of the bidder. The subcriteria in this category were:a. net worth (equity + reserves);b. debt to equity ratio; andc. profits in the last 3 years.

The financial criteria were assigned four points.

3. The third and the most important criteria were the ‘work programme’ offered by thebidder. This included:a. commitment on seismic surveys;b. programme for drilling; andc. a report on overall geological prospects.

These criteria had a weightage of up to 60 points. Thus, score on the work programmewould be very effective in deciding the winning bid.

4. The fourth and final criteria were the fiscal package. It included:a. the issue of royalty;b. profit petroleum accruing to the central government; andc. income tax accruing to the central government.

The fiscal package criterion was assigned a weightage of 30 points.However, the evaluation criteria for the bids were drastically revised in the sixth round

of NELP (The Times of India, 2006). It was changed in order to give increased weightageto some of the abovementioned criteria and to discourage the speculative bidding. Therevised evaluation process gave more emphasis on the technical capability of the operatorand the revenues it was willing to share with the government. Under the sixth round, theweightage for work programme criterion was reduced to 25 points from 60 points earlierassigned to it. The weightage for technical capability was given 15 points, whereas theweightage for the fiscal package was assigned 60 points. Thus, it is found that by the sixthround of NELP, the fiscal package became the most important and decisive criterion for theevaluation of bids (The Economic Times, 2006). It could also be the result of increasingconfidence of Indian government emanating from the success of the NELP and the newdiscoveries of oil and gas reserves through the various rounds of NELP. The weightage forall bid evaluation criterion has been declared in advance. This makes the entire biddingprocess transparent. The successful bidders are offered various tax and other incentives.Foreign direct investment to the extent of 100 per cent is permitted. An income tax holidayfor 7 years from the start of commercial production is also provided (The EconomicTimes,2009c). All bid and exploration costs are recoverable once production starts. These costs

Muhammad Azhar182



could be spread over a period of 10 years from the start of commercial production. Suc-cessful companies would receive international prices for their oil and gas output.

During the subsequent rounds, the bid evaluation system was partially amended, butthe overall criteria remained similar. However, NELP-VII saw introduction of a new typefor on-land small-sized blocks. It was called type S. These blocks had an area of less than200 km2 (Frontier India, 2008). To encourage small and medium E&P companies, thetechnical capability for on-land and shallow water blocks was made a prequalification cri-terion, while for type-S blocks, it was dispensed with.At the same time, a new consortium/partnership subcriterion in technical capability for deep water blocks was introduced.Apparently, the idea had been to encourage domestic companies to tie up with experiencedforeign players (K.G. basin, 2008). During NELP-VII, it was also decided that govern-ment’s share of profit petroleum would be biddable against two tranches of pre-tax invest-ment multiple (PTIM) between 1.5 and 3.5. The shares of profit petroleum to governmentwould be worked out on a linear scale with a positive slope depending upon the exactPTIM achieved in each of the preceding year (Joshi, 2007). For NELP-VIII, the categori-sation of on-land blocks into type A and B was done away. Now only four types of blocks,namely deep water blocks, on-land blocks, shallow water blocks and type S, remained tobe offered. More emphasis was given to the work programme, while the weightage forconsortium criteria was reduced. Furthermore, the production beyond 400 bathymetrywas made a consortium criterion for either Indian or foreign company. NELP-VIII alsointroduced one exploration phase of 7 years for all blocks. The clause of compulsory relin-quishment after 4 years was removed. Government’s share of profit petroleum remainedthe same as in NELP-VII. An important aspect of NELP-VIII had been the extensive con-sultation process with various E&P companies, industry bodies and association of oil andgas operators to decide upon the amendment in bid evaluation criterion (Pandey, 2009a).

12. Performance and prospects

By the end of the eight NELP rounds, 236 exploration blocks have been awarded to publicsector, private/foreign E&P firms. From these auctioned blocks, 243 exploratory wellswere drilled and 23 oil and 55 gas discoveries took place. It was also reported that theenergy firms had invested about $13.81 bn in E&P activities under the NELP regime (TheEconomicTimes, 2010a).Thus, the NELP resulted in not only attracting substantial invest-ment in the exploration activities for oil and gas but also resulted in the substantial discov-ery of oil and gas in the blocks awarded under various rounds of NELP. The variousimportant discoveries include the Mangala Oilfield discovered in 2004 by the joint ventureof Cairn Energy and ONGC. It is claimed to be the largest onshore discovery in India overtwo decades. The Mangala, Bhagyam and Aishwarya fields together have a recoverable oilreserve of one billion barrels. By 2011, the oil production at Mangala is expected to peak at




175,000 barrel a day and may account for 20 per cent of India’s domestic production(Sebastian, 2009). ONGC also discovered oil in the hydrocarbon-rich KG basin. TheONGC discovery affirmed the abundance of oil in India’s east coast. Reliance IndustriesLimited also started producing oil from the D-6 block in KG basin. GSPC also discoveredoil in KG basin. ONGC has plans to produce 8000 barrels of oil per day and 25 millionmetric standard cubic meters per day (mmcd) of gas by 2012–2013 from KG basin blocks(Pandey, 2009b). ONGC has also discovered gas in the Kutch offshore block-1 in westernoffshore. Reliance Industries Limited started natural gas production from D-6 block in KGbasin in March 2009. At its peak, the production would increase to 80 mmcd and doubleIndia’s gas production. The gas in this block was discovered in 2002 and production com-menced in less than 7 years of the discovery. RIL with its partner Niko Resources ofCanada had bagged this block in the first round, i.e. NELP-I. In total, RIL made 19 gas andone oil discovery in KG basin deep sea block KG-D6. RIL also discovered three gas reser-voirs in KG basin deep sea block KG-FD (The Indian Express, 2009b). RIL bagged thisblock in NELP-V round. RIL holds 90 per cent interest in this block, while the balance isheld by Niko. RIL has also made eight gas discoveries in NEC-25 block in the Mahanadibasin, off the Orissa Coast (The Times of India, 2009). Of these, six have been declaredcommercially exploitable. These discoveries made India to record the highest rise innatural gas output in the world during 2009 (The Economic Times, 2010b).

No doubt that these discoveries under NELP regime has resulted in substantialaddition to oil and gas in India from the domestic sources. But NELP has also attractedcriticism on many accounts. It is found that the top private foreign players such as Exxon,Shell, Chevron, Statoil and Conoco Phillips have never participated in a single NELPround (The Economic Times, 2009d). It is further found that NELP’s objective of trans-forming Indian upstream E&P sector into a multiplayer competitive market has not beenachieved. Rather it has created domestic duopoly consisting of ONGC and RIL. Up toNELP-VII, ONGC held 57 per cent, RIL held 30 per cent and others, more than 50 com-panies, held just 13 per cent of the total NELP acreage.Thus, ONGC and RIL together held87 per cent of all blocks in terms of acreage. It is also reported that out of aggregate capitalexpenditure of $10.7 bn under 203 PSCs, only one PSC (RIL’s KG-D6) accounts for$4.8 bn or 45 per cent of the total. And hence, the various rounds of NELP have not alsobeen able to attract the expected level of global capital inflows into India’s E&P sector(The Economic Times, 2009e). The situation remains same after NELP-VIII, as ONGCcornered the major share of blocks awarded in this round also.

The PSCs are the main legal documents between the participating companies and thegovernment. It details the obligations and shares of the companies and the government.There have been allegations of inconsistency in the government’s offer to investors and thePSCs (Jayasawal, 2009). The offered documents of NELP-VIII on the one hand promisedfreedom to the companies for marketing of oil and gas in the domestic market. While on

Muhammad Azhar184



the other hand, the PSC document for NELP-VIII specifically mentioned the role of Indiangovernment in marketing of the gas. The government has decided to play an equal role infixing the selling price of gas. The government shall also dictate the companies whom tosell the gas to and the priority for each consumer segment under the gas utilisation policy.The government’s move is aimed at ensuring the proper use of a scarce national resourceand fair pricing (The Economic Times, 2009f), although this was not explicitly stated inprevious PSCs. But the ruling of the Supreme Court of India in the famous Ambanis gasdispute in May 2010 has been favourable to the Government of India. The court ruled thatthe PSCs gave the government the right to approve a gas price and fix its users (The Eco-nomic Times, 2010b). Consequently, the freedom of the companies in pricing and market-ing has been taken away. The government has anointed itself with the monopoly power todictate the pricing and marketing of gas, although this has been justified in the nationalinterest. But, effectively it goes against the government’s avowed policy of free market inthe petroleum sector. This has been termed as similar to the license and control regime andadministered price mechanism regime prevalent in pre liberalisation and reforms era,which may discourage private and foreign investors participation in India’s E&P sector(HindustanTimes, 2007). And hence the beauty of the future policy would lie in devising astrategy that protects the national interest but is simultaneously able to maintain the attrac-tiveness of India’s E&P sector to the private and foreign investors. This certainly requiresinnovations in the policy making in India’s petroleum sector.

13. Conclusion

● For about half a century, Indian exploration sector remained the monopoly of Indianpublic sector undertakings.

● The government of India’s economic policies took a U-turn in1991. This led to theintroduction of policies of liberalisation and reforms in Indian economy in consonancewith the policies of free market and globalisation.

● NELP in India has been a corollary to the policy of reforms in Indian petroleum sector,which in turn has been consequent to the policy of liberalisation and reforms beingimplemented in Indian economy since 1991.

● Despite the ongoing reforms and liberalisation, it took about one decade for govern-ment of India to implement the NELP permitting private and foreign participation inexploration sector.

● By 2010, nine rounds of the NELPs have been launched.● After the ninth round, the Government of India is planning to move towards the OALP.● The NELP has resulted in substantial discovery of oil and gas.● However, it is found that the NELP has resulted in the birth of a domestic duopoly con-

sisting of ONGC and RIL.




● The Government of India’s policy to decide the price and consumer of natural gas goesagainst the avowed policy of NELP.

● Policies that discourage private and foreign investor’s participation in India’s explora-tion sector should be avoided.

References

Association of Oil and Gas Operators in India, 1999. NELP-1. URLhttp://www.aogo.in/nelp1/html [accessed 22 March 2011].

Association of Oil and Gas Operators in India, 2002. NELP-3. URLhttp://www.aogo.in/nelp3/html [accessed 22 March 2011].

Birla Economic Research Foundation, 1988. India’s Energy Scene: Options for the Future.Radiant Publishers, New Delhi.

Centre for Monitoring Indian Economy, 2008. Energy. Centre for Monitoring Indian Economy,Mumbai.

Farooqui, I.A., 1999. The Story of ONGC. Sahar Publications, Dehradun.Frontier India, 2008. India approves 44 blocks under New Exploration Licensing Policy—VII.

URL http://frontierindia.net/cae [accessed 31 March 2010].Ghadar, F., 1983. The Petroleum Industry in Oil Importing Developing Countries. Lexington

Books, Lexington.Government of India, 1999a. India Hydro Carbon Vision 2025, 5.Government of India, 1999b. The Gazette of India extraordinary. Ministry of Petroleum and

Natural Gas, New Delhi, 25 February.Hindustan Times, 2005. Bids invited for 20 blocks under NELP. Hindustan Times, 5 January, p. 15.Hindustan Times, 2007. BP, BG, hardy slam government on gas pricing. Hindustan Times, 23 July,

p. 27.India Economic News, 2000. New Exploration Licensing Policy Unveiled. URL

http://www.indianembassy.org/enews_dec_2000.pdf [accessed 22 March 2011].Jayasawal, R., 2006. 44 oil companies to bid for blocks in NELP-VI. The Economic Times, 12

September, p. 7.Jayasawal, R., 2007. Centre to spend 270 cr on oil and gas during 11th plan. The Economic Times,

12 May, p. 11.Jayasawal, R., 2009. NELP VIII offer at odds with PSC on sell pay. The Economic Times, 12

August, p. 9.Joshi, D., 2004. Fuel security a distant dream: 70% of fuel requirement met through imports. The

Hindustan Times, 10 May, p. 17.Joshi, D., 2007. Bids invited for new round of oil exploration. The Hindu, 14 December, p. 17.Joshi, D. and Choudhary, G., 2006. Oil ministry seeks core sector status for E& P business.

Hindustan Times, 28 December, p. 15.K.G. basin, 2008. K G basin: new exploration licensing policy. URL

http://kgbasin.in/new-exploration-Licensing-Policiy [accessed 1 April 2010].Khera, S.S., 1979. OIL. National Publishing House, New Delhi.

Muhammad Azhar186



Mitra, N., 1992. Energy policy planning in India: case of petroleum and natural gas. Economic andPolitical Weekly, August 2009, pp. 109–115.

Pandey, P., 2009a. ONGC strikes oil in KG basin. The Economic Times, 23 February, p. 7.Pandey, R.S., 2009b. Address by Shri R.S. Pandey Secretary, Ministry of Petroleum and Natural

Gas at the launch of eight round of NELP and fourth round of Coal Bed Methane Policy. URLhttp://petroleum.nic.in/Sec-Speech.pdf [accessed April 2010].

Prasad, K.N., 2003. Indian Economy: Before and Since the Reforms. Atlantic Publishers andDistributors, New Delhi.

Ramachandran, S., 2004. India faces huge oil import bill. The Hindu, 19 March, p. 18.Sebastian, S., 2009. Mangla oilfield marks beginning of a new era. The Hindu, 30 August,

p. 9.Srivastava, L. and Goswami, R., 1999. The Indian oil experience: a case study. In Privatization

and De-regulation in the Gulf Energy Sector, The Emirates Centre for Strategic Studies andResearch, Abu Dhabi, pp. 55–68.

The Asian Age, 2004. ONGC grabs 14 of 20 oil and gas blocks. The Asian Age, 7 February, p. 6.The Asian Age, 2006. ONGC leads race with 45 bids. The Asian Age, 16 September, p. 6.The Asian Age, 2008. Centre awards 44 oil gas blocks, eyes $1.5 billion. The Asian Age, 21

November, p. 16.The Economic Times, 2001. Second round of bidding under NELP-II to be launched. The

Economic Times, 9 January, p. 6.The Economic Times, 2003. ONGC pips reliance to win 15 oil and gas blocks in NELP-IV. The

Economic Times, 29 October, p. 8.The Economic Times, 2005a. NELP to lure FDI in oil Exploration. The Economic Times, 31

January, p. 3.The Economic Times, 2005b. Government invites bids for 20 oil and gas exploration fields under

NELP. The Economic Times, 5 January, p. 5.The Economic Times, 2005c. NELP: ONGC, RIL clinch most of 18 oil blocks. The Economic

Times, 26 July, p. 14.The Economic Times, 2006. No deepwater blocks for the novices. The Economic Times, 13

September, p. 7.The Economic Times, 2008. 96 companies bid for 45 blocks in Nelp-VII, no takers for 12. The

Economic Times, 1 July, p. 1.The Economic Times, 2009a. Government to relaunch NELP-VIII on August 8. The Economic

Times, 23 July, p. 11.The Economic Times, 2009b. No takers for half the oil and gas blocks auctioned under NELP. The

Economic Times, 13 October, p. 7.The Economic Times, 2009c. Natural gas producers may get 7 year tax holiday. The Economic

Times, 12 February, p. 1.The Economic Times, 2009d. Muted response to NELP-VIII auction. The Economic Times, 13

October, p. 10.The Economic Times, 2009e. RNRL blames petromin for absence of top 5 companies from NELP

auction. The Economic Times, 21 August, p. 9.




The Economic Times, 2009f. Government set to curb pricing freedom of NELP-VIII companies.The Economic Times, 7 August, p. 1.

The Economic Times, 2010a. NELP-IX by September, 50 blocks on offer. The Economic Times,6 August, p. 11.

The Economic Times, 2010b. India record highest rise in gas output worldwide. The EconomicTimes, 10 July, p. 8.

The Hindu, 2005. Licensing for oil blocks signed: ONGC, RIL emerge most successful bidders.The Hindu, 24 September, p. 17.

The Hindu, 2007. NELP-VI deals signed. The Hindu, 3 March, p. 8.The Hindu, 2008. Cairn India to tap first oil from Mangala field in Rajas than by mid 2009. The

Hindu, 30 October, p. 18.The Hindu Business Line, 2010. ONGC, partners bag 17 blocks under NELP-VIII. The Hindu

Business Line, 20 March, p. 17.The Indian Express, 2007. Energy sector needs $ 150 billion in 5 years. The Indian Express, 28

December, p. 16.The Indian Express, 2009a. NELP-VIII: India’s biggest oil, gas blocks auction kicks off. The

Indian Express, 10 April, p. 17.The Indian Express, 2009b. Reliance makes 3rd gas discovery in KG basin block. The Indian

Express, 23 December, p. 12.The Indian Express, 2010. Oil firms may soon get to choose blocks. The Indian Express, 1 July,

p. 17.The Times of India, 2006. Government plans to sign 52 oil blocks, pact under NELP. The Times of

India, 17 November, p. 16.The Times of India, 2009. RIL discovers gas in Mahanadi basin block. The Times of India, 17

August, p. 11.Venugopal, P.T., 1983. Self sufficiency in oil. In Subrahmanya (ed.) Energy Problem and World

Economic Development, Deep and Deep Publications, New Delhi, pp. 86–89.

Muhammad Azhar188



New exploration licensing policy (NELP) in India

Documents

Transcript of New exploration licensing policy (NELP) in India