India announces reforms to oil and gas industry

National flag of India
Source: DollarPhotoClub

Minister of State for Petroleum and Natural Gas Dharmendra Pradhan recently announced additional proposals for reform of India’s oil and gas industry. Increased gas price freedom, unified licensing and a shift to revenue sharing, rather than profit sharing, are among the reforms Pradhan is pursuing after seeking input from industry leaders and experts.

“We will make the policy after considering all the views and take it to the Cabinet,” said Pradhan while at the Bio-Energy Summit 2015, as quoted by the Hindu on November 17. These collaborative reforms are part of an ongoing governmental effort to increase India’s energy security.

The fall in global oil prices has had an impact on revenue. That is why oil exploration companies, including Cairn, Reliance Industries, ONCG and OIL, petitioned the government for tax policy change in the industry. Lower profit margins often translate into a reduction in the monies available for petroleum and gas exploration.

Increasing price setting autonomy is one way to encourage oil exploration. Uniform licensing is another. Instead of having to obtain separate licenses for different types of petroleum and gas exploration, as is currently required, uniform licenses allow holders to explore for and produce coal bed methane, as well as shale reserves, oil and gas.

The shift from profit sharing to a revenue sharing is expected to play an important role in facilitating development in India’s oil and gas industry, making development processes faster and easier. Profit sharing makes government field and revenue auditing necessary because inefficient operations mean decreased revenues for government.

Reducing governmental auditing decreases development slowing bureaucratic processes. It is also expected to reduce the time and money government officials spend on legal disputes related to the profit sharing model. Not everyone, however, is pleased with the proposed revenue model change because profit sharing currently arranged allows operators to recoup development costs before sharing revenue with the government, a benefit appreciated by many smaller producers.

India imports the vast majority of the petroleum and gas it requires to meet the nations increasing energy demands. Prime Minister Narendra Modi recently announced that addressing that issue is a policy priority for the Indian government. The government would like to see the current proposed reforms adopted before the end of the fiscal year, with the expectation that these reforms will aid in the effort to increase the nation’s overall energy security.

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