Petroleum Minister M. Veerappa Moily’s plans to launch the tenth round of bidding for oil and gas blocks under the New Exploration Licensing Policy (NELP) in January may be well-intentioned. But given the lack of clarity about pricing and the administrative hurdles that have prevented the development of even blocks awarded in previous rounds, it makes sense to resolve these issues before venturing into further bidding. The nine rounds of NELP since 1999 have resulted in production from just three out of the 254 blocks awarded. In many blocks, exploration and production (E&P) firms haven’t been to undertake even basic 3D seismic survey work for want of regulatory approvals from various government departments. Only last month, the Anglo-Australian mining giant BHP Billiton announced relinquishing nine out of the 10 blocks it had bagged during the seventh and eighth NELP rounds. The reason: inability to secure Defence Ministry clearance for conducting exploration on fields that fell partly under its jurisdiction.
There is no point auctioning blocks in this climate of unclarity and uncertainty. Whether drilling wells in a particular block will yield the desired quantity of oil or gas is a business call for E&P firms to take. But whether a block is in the vicinity of sites for naval exercises, missile firing or satellite launching is something the Centre ought to know before inviting bids. Many firms would have chosen not to bid at all if they had anticipated such problems. The fact that production sharing contracts were signed for just 19 blocks in the last NELP round — as against 32, 41 and 52 in the preceding three — is indicative of receding interest, especially among global energy majors.
The Centre also needs to also make up its mind on pricing and marketing freedom. This was explicitly promised under NELP but subsequently reneged on by the Centre through an agreement with the operator of the largest producing block to sell gas at a particular price. Once that happened, the basic premise of NELP — a fully market-driven pricing regime for the oil or gas produced from developing a block — was compromised. If the Centre wants the tenth round of NELP to be successful, the least it can do is implement the arm’s length pricing formula for gas suggested by the Rangarajan Committee. Although the Cabinet has approved the formula — which would take domestic gas prices closer to import parity levels — it will take effect only by April next year. This is another reason against rushing into an auction in January.