KOLKATA (miningweekly.com) – Finally overruling strident opposition, the Indian government has approved taking away smaller discovered oil and natural gas blocks of its national oil exploration and production (E&P) majors and allocating them to private investors through auctions.

The move, criticised by a section in government and State-run companies as asset stripping of national oil companies, was approved by an inter-Ministerial Group of Ministers (GoM) based on recommendations of government policy advisory body NITI Aayog (National Institute for Transformation of India Commission).

The GoM has identified 97 such small discovered oil and gas fields, to be taken away from national E&P companies – ONGC and Oil India Limited (OIL) – and auctioned to private investors, on the grounds that the State-run oil companies had failed to develop these assets.

The GoM decision also comes with an addendum that 52 other small and discovered oil and gas fields that would be left with ONGC and OIL would also be liable to be taken away and put up for auction if the latter failed to put in place “enhanced production techniques” as approved by approved international agencies, government officials said.

The government has laid down that in the case that production at these 52 fields fell below 10% of the performance parameters submitted by the national companies over the next three years, these fields too would be taken away and put up for bidding by private investors.

The criticism of asset stripping also gained traction since the government's decision entailed that private investors successful in bagging these 97 small and discovered oil and gas fields would not have to reimburse costs incurred in exploration and development of these assets by the national oil companies, sources pointed out.

The national oil companies have over the past year, since government first proposed taking away the fields, opposed the move on grounds that any new operator would be given full marketing and pricing freedom, benefits which had not been accorded to State-run companies.

To compound criticism of the sweetening of the deal for private bidders, the government has liberalised terms and conditions for any new operators of these fields. For one, revenue sharing with government by the new operators would not kick in from the first year of operation but only when revenues touched specific predetermined levels for each block.

The new operators would also enjoy the benefit of lower royalty payments to the government if production from onshore fields was started by the operator within four years, and within five years in the case of offshore assets.

Officials in national oil companies said that while the government had not offered incentives to either ONGC or OIL for full development of these “challenging” small and discovered fields and effectively expected optimal production with “one hand tied behind the back”, prospective new operators were being offered sops without even having to pay for start–up exploration and preliminary project development costs.