KOLKATA (miningweekly.com) – The Indian government is planning to frame an incentive policy for oil and natural gas exploration and production (E&P) companies.

The new policy will incorporate some of the financial incentives discontinued earlier, and the sops extended to E&P companies, even if they fail to bring exploratory blocks into production as per timelines stated when securing the blocks at the auctions.

Government officials said that this will benefit a large number of E&P majors, like State-run ONGC, Vedanta’s Cairns Oil and Gas and Reliance Industries, which have bagged a number of oil and gas blocks through recently held auctions.

The officials said that E&P companies will be eligible for the incentives even if exploratory blocks are not brought into production within stipulated deadlines, so that investors can remain engaged in the Indian energy sector in the long term through providing them with an extended window to operationalise “challenging” oil and natural gas blocks.

One of the incentives that is being mulled includes a tax holiday under the Income Tax Act to be extended to investors with such a “tax holiday” continuing throughout the entire tenure from exploration to production, irrespective of the time stipulated for operationalising the block in the asset allocation contract.

In fact, the government has steadily “disincentivized” investments in the oil and natural gas sector, officials say, pointing out that in that year, tax holidays awarded under the then-licensing regime after March 31, 2011, had been withdrawn. Subsequently, this was widened and no oil and natural gas block brought into production after March 31, 2017, irrespective of the time of asset allocation, had been withdrawn.

Sources said that the government, led by the Petroleum and Natural Gas Ministry, is working rapidly to complete finalisation of the new incentive policy and it is possible that the same could be incorporated, while presenting the national Budget early next month, which will also usher in a new Finance Bill 2019.

The urgency of the issue also stems from the fact that India’s oil imports have seen a sharp spike in recent months, despite the government’s stated policy objective of reducing the country’s import dependency by at least 10% by 2022.

Indian oil import dependency increased to 83.7% during 2018/19, up from 78.3% during 2014/15, with domestic crude oil production remaining flat during the period in the range of 35-million to 36-million tons a year.

Hence, the government reckons that sectoral investors need to be incentivised to remain engaged in the sector for the long term if the current trend is to be reversed, the officials add.