An answer to India's energy woes?

Thu, 18 Oct Pre-Open

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The tenth round of exploration licensing policy is around the corner. Struggling with the huge energy deficit, the Government is planning to fine tune exploration regime in a way that it does not witness damp response as was seen in the ninth licensing round. The ninth exploration licensing round saw few suitors for Indian energy assets, especially from global companies. The domestic energy sector needs more funds and better technology. However, the sector is bogged down by regulations and retrogressive Government policies.

It is common knowledge that even after competitive bidding, some blocks are still waiting for allocation for want of clearances from one ministry or the other. It is because of such delays and interventions that the global companies are staying away from domestic energy assets.

In order to revive interest before the next licensing round, the Government is considering a policy that will let energy companies carry their exploration plans without beauracratic interference. With the new policy, also called production-linked payment (PLP) policy , there will be no need for private companies to disclose the details of the expenditure incurred in exploration and production. In return, the Government will be claiming a share in the profit of the companies from the first day of production itself. Under the existing policy (Production sharing contracts) , the profit sharing happens only after the energy companies recover costs. The current policy has often been critcised for it incentivizes explorers to act in a way (inflate costs) that delays Government's profit share.

The new policy will align India with developed countries with regards to exploratory regime. If approved by the Cabinet, one of the basis to select firms will be how much they bid for a percentage of output they would share with the government. The explorers which will offer the maximum are likely to be favoured. The new policy promises to speed up exploration and production cycle and promises more involvement of global companies for our energy starved nation. However, it is yet to be approved by the Cabinet. We hope the proposal to cut government interference doesn't get stuck for lack of Government approval.