25 January, 2016
A New Regime for Exploration of Hydrocarbons Proposed
The Ministry of Petroleum & Natural Gas had issued a consultation paper (‘Consultation Paper’) to invite comments from the stakeholders on a new framework for exploration of hy- drocarbons that will replace the existing exploration license policy for petroleum and coal bed methane (‘CBM’). The Consultation Paper was open for comments until November 30, 2015. GoI may, after considering the comments of the stakeholders, finalise and publish the new regime.
GoI has proposed replacement of the New Exploration License Policy for exploration of petroleum and CBM (‘NELP’) with a new regime. Under the NELP regime, the petroleum explo- ration license for any block is awarded through bidding conducted by the GoI. The successful bidder enters into a production sharing agreement, which provides for sharing of petroleum explored and extracted after recovery of the cost of such exploration and extraction. This regime was introduced in 1999 (nine rounds of NELP bidding have taken place so far, with the last round having been conducted in October, 2010). The NELP regime has achieved mixed results and there are some legal disputes in relation to computation of cost of exploration and extraction. Some critics believe that the NELP model has resulted in gold-plating of costs by the operators.
The GoI has, accordingly, proposed a new regime for award of hydrocarbon acreage and has issued the Consultation Paper. The important features of the proposed regime are as follows:
- Revenue Sharing Model: The bidders will submit the bids in terms of percentage of revenue to be shared by the bidder with GoI at different stages of production and under different cured oil price scenarios. The new regime will allow greater flexibility in pricing and marketing;
- Uniform License: The proposed regime will allow exploration and extraction of all hydrocarbon resources covered under the regulations under a single petroleum exploration license. The uniform license will enable the contractor to explore con- ventional and unconventional oil & gas resources including CBM, shale gas and gas hydrate; and
- Open Acreage Licensing Policy: The proposed regime will allow bidders to sub- mit bids for exploration areas of their choice. For this purpose, the entire sedimentary area of 3.14 million square kilometers is proposed to be divided into 9,300 sectors of approximately 336 square kilometres each. A company interested in a particular sector can submit its expression of interest to the Director General of Hydrocarbon, which may, after obtaining necessary approvals, invite bids for that particular area.
Cabinet Committee on Economic Affairs (‘CCEA’) Allows National Highway Authority of India (‘NHAI’) to Give Dispensation to Concessionaires
The CCEA on November 18, 2015 allowed NHAI to grant certain dispensation to concessionaires, subject to certain conditions. In a move to further encourage investment in the roads sector, CCEA has authorized NHAI to undertake the following:
- Grant extension of the concession period for toll projects, which are under con- struction, awarded on a ‘build, operate and transfer’ basis, if such projects have suffered delays due to reasons not attributable to the concessionaire; and
- Pay compensatory annuities for annuity projects that are under construction, if such projects have suffered delays due to reasons not attributable to the concessionaire.
The above dispensations are to be based on the recommendation of an independent engineer and, subject to certain conditions, which include the physical completion of such project within three years of using such dispensation, and no increase in operation period.
It may be noted that the current master concession agreement does not clearly address these issues. Accordingly, this has resulted in asymmetrical risk allocation, as the concessionaire (and also lenders) have to take certain risks (like non-availability of land or delay in obtaining of clearances), which should be handled by a sovereign authority like NHAI. Such delays result in a double loss to the concessionaire, in the form of increased costs due to delay and a reduced operational period, both of which result in loss of revenue.
The aforesaid approval of CCEA is aimed to address this issue.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
