Cairn India is gung-ho on its India expansion plans. Speaking to Bloomberg TV India, Cairn India MD and CEO Mayank Ashar says the government should provide enough incentives for companies to invest more. Citing IEA estimates, he says India needs annual investments of $35 billion against the present level of less than $10 billion.

What is holding back capex in the oil and gas sector?

Capex is governed by multiple things. Clearly, one of the factors — but not the only factor — is the crude price itself. The second is the fiscal regime. We believe our interest and the Government of India’s interest are aligned because we both want significant oil and gas production.

But for that the only constraint Cairn has is: Cairn is more than willing to use some of the best technology in the world, operated very efficiently, operated very smartly, but it has to get a return. So when the crude prices come down as much as they have, some of the fiscal levies don’t make sense.

The cess is an example. For new exploration rounds there is no cess. So this is an old levy.

When the price was $100 per barrel, the levy for cess was about $10 per barrel. It was high but it was okay.

But now, as the oil prices come down to almost $45, the cess as a percentage of the crude prices is like 20 per cent.

It is almost as if the corporate tax went up by 10 per cent. So that burden is very punitive. In English there is a saying, ‘Don’t kill the golden goose’. So what most people don’t realise is even though Cairn operates very efficiently, its significant chunk goes to the government — 80-90 per cent.

All we are saying to government is that — okay let us be aligned, we will be more than willing to invest but we are not a charity. For us to invest, we have to earn a return.

When we are giving 80-90 per cent of what is left over to the government, there isn’t enough for us at these low prices. So having said that I do want to give the holistic picture — in 2014, we had the biggest investment ever in the history of Cairn.

We have a long track record on investing, investing strongly, heavily and consistently over many years. You have to be prudent and make sure that you generate cash flow. Otherwise you are not being wise.

What about moving into new geographies in India?

The exploration round for marginal blocks is coming up and we will take a look at that. There are some new initiatives by the Ministry of Petroleum and Natural Gas in terms of investment.

So we will look at that. To have a vibrant oil and gas sector, you need many companies and we know fundamentally that you have the balance right when there are many companies investing. We don’t have that in India.

What is your outlook on crude oil prices?

I have operated oil production when the price was $9 a barrel and when it was $147. I have seen the full spectrum.

The world consumes 93 million barrels a day and the extra supply is 2-3 million barrels — it is not a lot but still enough for inventories to be high and that puts a pressure on prices.

But if you look at the 150-year chart of oil prices, one thing is for sure — that prices don’t stay high for long and when they are low they don’t stay low for long.

I believe that supply-demand balance will get better and the prices will rise.

I don’t know exactly when it is going to happen but what most people say is it will be somewhere in the middle of 2016 onwards.

What’s your take on the government’s shift from production to revenue sharing model?

There are countries where there is production sharing contract (PSC) and there is revenue sharing elsewhere. I don’t think that matters that much. The devil is in the details. The critical thing is that is there an incentive to invest and there is clarity on the length of contracts.

Our PSCs expire in 2020 and we would love to have that extended till 2030.

Provide incentives and a lot of companies will invest. IEA says from now till 2035, India needs to invest $35 billion a year and we are investing less than $10 billion.

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