In a bid to further incentivise oil and gas exploration in the country, particularly by public sector undertakings ONGC and Oil India Ltd, the Cabinet Committee on Economic Affairs on Wednesday approved four changes in the rules that govern production sharing contracts.
The revised norms will be applicable on blocks awarded under the New Exploration Licensing Policy (NELP) and pre-NELP regime.
Speaking to reporters after the CCEA meeting, Minister for Petroleum & Natural Gas, Dharmendra Pradhan said, “In order to encourage bidders during the first batch of bids, in some pre-NELP blocks, there was a provision made that the entire cess and royalty burden was to be borne by Oil India and ONGC. This was despite them having a participating interest of lesser than100 per cent in a block. This situation prevailed over the last 2.5 decades.”
“Eventually, the growth of the field decreased under this approach, as the PSUs felt that they were bearing the full royalty burden despite having a participating interest of around 30-40 per cent only making the project unviable. They started expressing their obvious reluctance to the growth of these blocks,” Pradhan said. “In order to resolve this quandary, the Cabinet decided that the royalty and cess payout in these blocks will now be proportionate to the participating interest of the stakeholders,” he added.
Timeline relaxed
The Cabinet also relaxed the timelines for exploration and appraisal of blocks in the North East. An official statement said, “Based on recommendations in ‘Hydrocarbon Vision 2030 for North East’, the Government has extended timelines for exploration and appraisal period in operational blocks of North Eastern region of India considering geographical, environmental and logistical challenges.” “The exploration period has been increased by two years and appraisal period by one year. Further, to stimulate natural gas production in the North East, the Government has also allowed marketing including pricing freedom for natural gas to be produced from discoveries which are yet to commence production as on July 1, 2018,” the statement added.
Another provision made in the PSCs is the extension of tax benefits under Section 42 of Income Tax, 1961 prospectively to operational blocks under Pre-NELP discovered fields. Companies will be allowed to claim 100 per cent of expenditure incurred under a PSC as tax deductible for computing taxable income in the same year. This provision will also be applicable for the extended period of contract under PSC extension policy dated March 28, 2016.