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Cabinet nod for new gas pricing

Tweak the mining law to speed up the takeover of companies

Policy Pulse
Publish Date: Mar 11 2016 12:05PM | Updated Date: Mar 11 2016 3:09PM

Cabinet nod for new gas pricing

 The government announced sweeping market-friendly reforms that usher in a new oil exploration regime unshackling the sector from intricate controls, allow a higher price of gas for new deep-sea fields and tweak the mining law to speed up the takeover of companies that have captive mines. 

The decisions, taken by the Cabinet Committee on Economic Affairs on Thursday, will make idle reserves worth Rs 1.8 lakh crore in challenging terrain such as the deep sea commercially viable and boost India's gas output by nearly 40% as companies like Reliance IndustriesBSE 0.30 % and ONGC will be able to make heavy-duty investments once they are allowed to charge a much higher price for gas. 
The Cabinet completely overhauled the oil & gas exploration policy. The new policy gives companies complete pricing freedom and allows them to extract any hydrocarbon they discover instead of having separate licences for shale, coal-bed methane and conventional oil & gas. 
The changes will attract global majors, said Raghu Yabaluri, director at Deloitte. "The combination of unified licensing policy — which provides access to all hydrocarbon resources, open acreage — which helps operators to choose specific blocks where they have competitive advantage, and pricing freedom will definitely create alot of global interest," he said. 
The new Hydrocarbon Exploration & Licensing Policy (Help) will also provide for revenue sharing instead of profit sharing. In the current system, the government is obliged to closely monitor oilfield development expenditure to ensure its profit is not crimped by exaggerated costs. Under the new system, the government will get a share of the revenue, freeing it from the obligation of monitoring costs or auditing the accounts of the fields. 
The Comptroller and Auditor General of India's audit of oil & gas fields had generated a political storm, followed by controversial legal tussles in recent years. 
The reforms, which follow liberalisation of multi-brand retail in the food sector and a series of measures for farmers and rural development, will be welcomed by industry. Companies and banks have been seeking changes in the Mines & Minerals (Development & Regulation) Act, 1957, which obstructed liquidation of stressed assets as well as acquisitions because of restrictions on transfer of captive mining leases. 
The existing system also required companies to take official approvals at various stages to prevent the contractor from overstating costs. 
"This process of approval of activities and cost gives the government a lot of discretion and has become a major source of delays and disputes.