KOLKATA (miningweekly.com) – India’s Oil and Natural Gas Ministry is examining offering incentive options to woo investors into taking on marginal oil and gas blocks, a number of which are not finding takers in eastern and north-eastern regions of the country.
A Ministry official said it was exploring the viability and legality of packaging a set of incentives for about 69 marginal oil and gas blocks, which would be put up for auction along with other hydrocarbon blocks at the forthcoming competitive tenth round of bidding under the New Exploration Licensing Policy (NELP).
Most of these 69 marginal blocks had earlier been allotted to government-owned exploration and production (E&P) majors, including ONGC Limited and Oil India Limited, but had been abandoned owing to difficult terrain, unviable reserves and high investment and technological demands.
The Ministry was looking into incentive models such as the ones adopted in Malaysia and Nigeria, which offered sops, such as a graded system of royalty payment obligations, tax holidays and higher rates of depreciation, the official said.
However, he conceded that the government would have to resolve the tricky issue of incentivising marginal oil and gas blocks, while keeping auction terms and conditions the same for more lucrative blocks under NELP IX, which the government was keen to kick off before the end of the current financial year.
The NELP IX round of auction had been delayed for over a year owing to differences in government over shifting from a production-sharing contract with the successful bidder to a revenue-sharing regime.
However, a section within the Ministry held that current government-administered gas pricing of $4.8-million a metric British thermal unit was unlikely to ensure long-term viability for development of the marginal oil and gas blocks and attract investors under the proposed revenue-sharing contract regime, the official said.
It was also pointed out that government-owned and -managed E&P majors had already developed the marginal blocks located in close proximity to each other and the ones left undeveloped were all isolated blocks.
Hence, any prospective investor would have to build logistics and infrastructure connecting the isolated blocks to the nearest evacuation or refining points, thereby further stretching gestation period and returns on investment at fixed gas prices.
According to the official, while the contours of the incentives were still in an embryonic stage, the overall objective of the government was clear to the extent that any prospective investor for marginal blocks would have to be assured of a 20% to 25% rate of return if a favourable response to auctioning the blocks was expected.