Chemicals Pharmaceutical Textiles Preface | Foreword | Executive Summary| Overview | Oil & Gas | Power | Interview | Company Profiles | Partners | Launch Event | Editorial Team Overview of Oil & Gas Overview of Power Evolution of the Indian Oil & Gas Industry Structure & Current Status Oil Pricing in India Key Regulatory Policies Key Issues & Future Outlook Development of Alternate Fuels Regulatory and Policy Environment Power Generation Power Transmission Power Distribution Demand Side Determinants IOC Reliance Industries Limited BPCL HPCL ONGC Mangalore Refinery & Petrochemicals Limited (MRPL) NTPC Ltd Reliance Infrastructure Limited The Tata Power Company Limited Power Grid Corporation of India Ltd Torrent Power Limited Neyveli Lignite Corporation Ltd Bengaluru Kolkata

Over the years various policies have been implemented by the Government to regulate and develop the oil and gas sector. The Petroleum Act to control issues relating to import, transport, storage, production, refining and blending of petroleum was already in place since 1934. Further, the Oil Fields (Regulation and Development) Act, 1948 and the Petroleum and Natural Gas Rules, 1959 provided regulatory framework for domestic exploration and production of Oil & Gas. The Directorate General of Hydrocarbons (DGH) was set up under the administrative control of the Ministry of Oil and Natural Gas in April 1993, as an upstream advisory and technical regulatory body to promote effective management of domestic oil and gas resources keeping in view the environmental safety, technological and economic aspects of upstream activities. In September FY06, the DGH was designated as an authority or agency to exercise statutory powers to carry out its functions under the Oil Fields (Regulation and Development) Act, 1948.

Further, the Administered Pricing Mechanism (APM) has been dismantled from April 2002. The measures announced by the Government for dismantling of Administered Pricing Mechanism include:

• Market determined pricing of petroleum
• Dismantling of Oil Pool Account, which was the balancing tool used under the APM
• Private companies were permitted for retail distribution of petro-products, subject to specified guidelines such as a minimum investment of Rs 20 bn is required in the petroleum sector
• Set up of Petroleum Regulatory Board
• Reduction in subsidies on LPG and Kerosene to 15% and 33% respectively by 1-Apr-02. LPG and kerosene subsidies to be phased out in the next 3 to 5 years

Besides, the process of de-licensing was initiated in 1998 and now, 100% FDI is allowed in petroleum refining, oil exploration in both small and medium sized fields pipelines (both petroleum products & gas) marketing/retail through the automatic route. Moreover, marketing of transport fuels (petrol, diesel & aviation fuel) is also permitted subject to an investment of Rs 20 bn in exploration and production (E&P), refining, pipelines, or terminals. At present 100% Foreign Direct Investment (FDI) is allowed through the FIPB route for both LNG projects and natural gas pipeline projects. Also, Natural Gas Pipeline Policy has been enacted to promote competition. Moreover, the planning Commission’s thrust to meet the demand for energy through - safe, clean and convenient forms of energy at the least cost in a technically efficient, economically viable and environmentally sustainable manner - is laid down in the report on Integrated Energy Policy in August 06.

In order to empower the Oil PSU in matters of import, the Government approved the continuance by Indian Oil Corporation Ltd. (IOCL) of the system of direct chartering of ships without going through TRANSCHART in March 2007. Besides, it also allowed BPCL and HPCL to charter ships for oil imports directly, instead of going through TRANSCHART ⁵.

The introduction of New Exploration & Licensing Policy NELP in 1999 is the key initiative of the Government in terms of Indian oil & gas sector reforms. NELP was formulated to provide a level playing field to both Public and private sector companies in exploration and production of hydrocarbons with Directorate General of Hydrocarbons as a nodal agency for its implementation.

Under NELP, 68 oil & gas discoveries have been made by private/joint venture companies in 19 blocks, thereby adding more than 600 MMT6 of oil equivalent hydrocarbon reserves. As on April 1, 2009, investment commitment under NELP amounted to about US$ 10 bn on exploration, while actual expenditure upto April 1, 2009 was approximately US$ 4.7 bn. In addition, investment worth US$ 5.2 bn has been made on development of discoveries.

• The possibility of the seismic option in the first phase of the exploration period.
• Foreign participation up to 100%.
• No minimum expenditure commitment during the exploration period.
• No signature, discovery or production bonus. View Details Of Blocks On Offer
• No mandatory state participation.
• No carried interest by National Oil Companies (NOCs).
• Income Tax Holiday for seven years from start of commercial production.
• No customs duty on imports required for petroleum operations.
• Biddable cost recovery limit up to 100%.
• Option to amortise exploration and drilling expenditures over a period of 10 years from first commercial production.
• Sharing of profit petroleum based on pre-tax investment multiple achieved by the contractor and is biddable.
• Royalty for onland areas payable at the rate of 12.5% for crude oil and 10% for natural gas. For offshore areas, royalty payable at the rate of 10% for oil and natural gas. Royalty for discoveries in deepwater areas beyond 400 m iso-bath chargeable at half the applicable rate for offshore areas for the first seven years of commercial production.
• Fiscal stability provision in the contract.
• Freedom to the contractor for marketing of oil and gas in the domestic market.
• Provision for assignment.
• Arbitration and Conciliation Act, 1996, based on UNCITRAL model, applicable.
• To facilitate investors, a Petroleum Tax Guide (PTG) in place.

In order to induce an increasing no of exploration & production companies to participate in the bidding process, Government of India has offered some attractive terms. These include:

⁵ TRANSCHART is an agency under the Union Ministry of Shipping and the Shipping Corporation of India for meeting the chartering requirements.
⁶ Economic Survey 2008-09