Oil Secretary Tarun Kapoor on Wednesday hinted at more reforms to raise the level of private participation in upstream oil and gas exploration and production, but remained non-committal on the industry”s demand for cutting levies to make the business attractive during a low price regime.
Talking to reporters at the end of the India Energy Forum of CERAWeek, he said companies will have to learn to live with low prices.
“There was a demand from various upstream companies for a reduction in cess and royalty. That was a demand that was there. To accept or not to accept is up to the government which takes a decision considering overall resource requirement (of the economy),” he said.
With oil prices slumping after the pandemic pummelled fuel demand, upstream producers such as ONGC asked the government to cut oil cess and royalty.
While low oil prices are good for consumers, they do not support new investments that are needed to keep oil and gas flowing from wells.
ONGC wanted the government to abolish oil development cess if the price realised by producers is less than USD 45 per barrel. It also wanted royalty that the central government charges on oil and gas produced from the offshore areas to be waived.
Currently, the government levies a 20 per cent ad-valorem oil industry development (OID) cess on the price that producers get.
Also, ONGC/OIL are required to pay a 20 per cent royalty on the price of crude oil they extract from onland oil blocks to the state governments. The central government charges 10-12.5 per cent royalty on oil produced from offshore areas.
Kapoor said the upstream industry was not in so much stress now, with the oil prices recovering from the lows of USD 20 per barrel to around USD 40. “Upstream companies have to now work at these prices. In the long term, upstream companies will have to adjust to the market.”
On the issue of near absent private sector participation in the last two bid rounds for oil and gas blocks, he said there is “a lot of appetite” for investing in upstream oil and gas exploration and production in India but the pandemic played spoilsport.
“I am hopeful that in the next round, we will have good participation (of the private sector),” he said. “We are going to come up with some more reforms.”
He, however, did not elaborate on the reform measures planned.
Open Acreage Licensing Policy (OALP) bid round No.IV and V saw the participation of state-owned ONGC and OIL, but almost no bids from the private sector.
Kapoor said India will continue to add oil refining capacity as the country will see growth in demand for fuel.
Also, the government wants India to become a refining hub that can export petroleum products to the region, he said.
OID cess is levied on crude oil produced as excise duty under the Oil Industries (Development) Act of 1974. The cess is being levied on crude oil from nominated blocks and pre-NELP exploratory blocks only.
The OID cess was raised from Rs 2,500 per tonne to Rs 4,500 per tonne in March 2012. The price of the Indian basket of crude oil stood at around USD 110 per barrel then.
With the fall in global crude oil prices in mid-2014, companies asked for reducing the levy and converting it into 8-10 per cent ad-valorem. The government had changed the levy of the cess to 20 per cent ad-valorem in March 2016.
The oil industry says cutting the cess rate will make over 200 million barrel of oil equivalent of production viable at the entire industry level. PTI