The belated and conditional approval accorded to the Cairn-Vedanta deal with the government asking both the overseas partners to accord relief to the national oil company Oil and Natural Gas Corporation on the issue of royalty, besides asking Cairn-India to recant the arbitration petition in international courts against the payment of a cess, raises several valid questions in the minds of investors keen on acquiring energy-related assets in India.
First, the UPA Government took 10 months to give the conditional nod after Cairn Energy announced the sale of a maximum of 51 per cent stake in Cairn India to London-listed Vedanta Group, putting paid to prospective investors eyeing any such acquisition in future India. This is further being borne out by the dilatory procedure in the approval of BP-Reliance Industries deal, the largest ever single foreign direct investment in India.
Policy of tinkering
Second, the move to approve the Cairn-Vedanta deal with riders by the Government — the obligations on royalty payments must perforce be reworked — raises the question of the sanctity of production-sharing contracts companies entered into with the Government and explorers according to the New Licensing Exploration Policy, which had already seen eight rounds of bidding.
This policy of tinkering aside, there are also disconcerting developments on the oil exploration and production front.
In order to attract foreign investors and provide a level playing field, the Government had set up regulators for upstream and downstream segments in the hydrocarbon industry. While the Directorate-General of Hydrocarbons (DGH) was to regulate upstream industry, the Petroleum and Natural Gas Regulatory Board was to take care of downstream business activities.
But, says a Delhi-based energy consultant Mr P. Balkrishna, that the functioning of both the boards was disappointing is revealed by the registration of a formal case by the CBI against the former DGH, Mr V.K. Sibal, and five of his erstwhile colleagues for hatching a plot to bestow favours on an American oil exploration company, GX Technology, for surveying a chunk of the country's sedimentary basin.
Meanwhile, the Petroleum and Natural Gas Regulatory Board, with a remit to safeguard the interests of consumers and entities engaged in specified activities and to promote competitive markets for products, has been locked in a turf war with the Ministry of Petroleum and Natural Gas. Its members were feuding with one another even while the Board itself fought legal challenges to its decisions. So much so, the court had also barred Mr B.S. Negi, one of the members of the Board, from taking part in deliberations on any application.
Regulatory fiasco
Nowhere the regulatory agencies in the crucial oil and natural gas industry have been faced with teething troubles as in India, particularly when its energy security is brittle and dependence on import substantial. There are laws which overlap, impeding investors to decode which one would prevail in the event of a dispute.
The Mines (Amendment) Bill 2011, which though primarily meant to keep pace with changes at work places in the mining sector so as to effectively manage safety and health risks to workers, expands mining to incorporate any excavation including borings, oil wells and accessory crude-conditioning plants, including pipes conveying mineral oil within oilfields.
There is also a legislation predating the Mines Act 1952, called Oilfields (Regulation & Development) Act 1948, which was over the years revised with rules, the latest in June 2008. Mines under this Act meant any excavation for the purpose of searching for or obtaining mineral oils and includes oil wells. This Act, too, defines ‘relevant waters' to include territorial waters, contiguous zones, the continental shelf and the economic zone of India.
It also encompasses Petroleum & Natural Gas (Safety in Offshore Operations) Rules 2008. Between these two Acts, there is another one, namely, the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act 1976, which lays claims to all operations in these areas.
To compound the confusion further, the proposed amendments to the Indian Mines Act 1952 would be over and above the rules already notified by the Petroleum and Natural Gas Ministry and would be ‘consistent with them'. Any investor would get torn among these disparate laws when it comes to the brass-tacks, only to be running from pillar to post in complying with the diverse set of an enlarging legislative maze.
Even as there is a set of legislations overlapping in a high-risk area like oil exploration, the rules governing blow-out preventers in oil wells remain a disturbingly grey area.
While the Oil Industry Safety Directorate has a superior set of standards which remains a draft and has not yet been notified, albeit being in line with the latest technological challenges, there is also the Directorate General of Mines Safety which had its own design requirements, a couple of decades older, for blow-outs.
This raises a valid query about which safety standards would come into play in the event of a blow-out like the one that occurred in July 2005 in Bombay High, endangering safety aspects, experts warn.