Union Cabinet approved Hydrocarbon Exploration and Licensing Policy

Mar 11, 2016 09:05 IST

The Union Cabinet, presided by Prime Minister Narendra Modi, on 10 March 2016 approved the Hydrocarbon Exploration and Licensing Policy (HELP).

The decision will enhance domestic oil and gas production, bring substantial investment in the sector and generate sizable employment. The policy also targets the enhancement of transparency and reduction of administrative discretion.

The HELP will replace the New Exploration Licensing Policy (NELP).

Four main components of the policy are:

• Uniform license for exploration and production of all forms of hydrocarbon

The uniform licence will enable the contractor to explore conventional as well as unconventional oil and gas resources including CBM, shale gas/oil, tight gas and gas hydrates under a single license.  

• An open acreage policy

The concept of Open Acreage Policy will enable Exploration & Production (E&P) companies choose the blocks from the designated area.

• Easy to administer revenue sharing model

Present fiscal system of production sharing based on Investment Multiple and cost recovery /production linked payment will be replaced by an easy to administer revenue sharing model.

The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the contractor after recovery of cost. Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes.

Under the new regime, the Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil, gas etc. This is in tune with Government’s policy of Ease of Doing Business.

• Marketing and pricing freedom for the crude oil and natural gas produced

Recognising the higher risks and costs involved in exploration and production from offshore areas, lower royalty rates for such areas have been provided to encourage exploration and production.

A graded system of royalty rates have been introduced, in which royalty rates decreases from shallow water to deepwater and ultra-deep water. At the same time, royalty rate for onland areas have been kept intact so that revenues to the state governments are not affected.

Cess and import duty will not be applicable on blocks awarded under the new policy.  The policy also provides for marketing freedom for crude oil and natural gas produced from these blocks.  This is in tune with Government’s policy of Minimum Government –Maximum Governance.

How is it different from NELP?

The NELP’s fiscal model of production sharing, which was criticised by the Comptroller and Auditor General of India (CAG), was based on investment multiple and cost recovery/production linked payment. After the introduction of HELP, the present fiscal system of production sharing will be replaced by revenue sharing model.

As compared to NELP royalty rates, HELP provides lower royalty rates for offshore areas to encourage exploration and production. At the same time, royalty rate for onland areas have been kept intact so that revenues to the state governments are not affected.

However, both the policies bear a similarity, i.e., cess and import duty will not be applicable on blocks awarded under the new policy.

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