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Few concrete steps for oil & gas sector in Budget 2013

Anilesh S. Mahajan     February 28, 2013
Finance Minister P. Chidambaram's budget speech contained exactly five sentences on the oil and gas sector. The five sentences made five promises that can potentially transform India's energy landscape. But, except promises, there were few concrete measures for the sector in the budget for 2013/14.

Chidambaram said that the government will review the oil and gas exploration policy to move from a profit-sharing mechanism to a revenue-sharing arrangement. The proposal is aimed at enhancing government revenue from oil and gas blocks, but it may discourage companies.

The current policy allows producers to first recover their costs before sharing profits with the government. This, say critics, provides a loophole to companies to enhance their costs and minimise the government's share.

The minister also said that the government will review the natural gas pricing policy and remove uncertainties on pricing . This is a welcome step, as several applications on gas pricing are pending with the petroleum ministry.

These include applications from Reliance Industries and Essar Oil for their coal-bed methane blocks. Reliance has also been pressing for an increase in the price of gas it produces from its D-6 block in the Krishna-Godavari basin, off the country's east coast.

In a bid to improve investor interest in the sector, Chidambaram said that the government will clear oil and gas blocks that had been previously awarded but are stuck because of objections from various government agencies. Besides, the government will announce a policy to encourage exploration and production of shale gas.

Chidambaram also assured that the liquefied natural gas terminal at Dabhol, Maharashtra, will be fully operational in the next financial year. That may not be of much help given that the terminal is facing difficulties in contracting LNG and that there are few takers of the imported fuel, which is far costlier than locally produced gas.

The budget proposals indicate the government's efforts to bring more clarity in the policies governing the sector.

Will good intentions translate into something concrete on the ground? Only time will tell.

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