Crude Oil: Government Moves To Boost Revenues With Deregulation Of Domestic Crude Sale

Government Moves To Boost Revenues With Deregulation Of Domestic Crude Sale

by Swarajya Staff - Jun 30, 2022 12:12 PM +05:30 IST
Government Moves To Boost Revenues With Deregulation Of Domestic Crude SaleAn oil refinery
  • According to the government, the decision is strategically important in the context of the government's efforts to ramp up domestic crude oil production, which has consistently declined since 2015.

In a significant decision aimed at incentivising the flow of investments in India’s upstream oil and gas sector, the government on Wednesday (29 June) approved the deregulation of the sale of domestically-produced crude oil from October, which in effect ceases government’s say in allocation of crude oil and condensate to state-run refinery and gives marketing freedom to exploration and production (E&P) companies.

The decision by the Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, to deregulate the sale of domestically produced crude oil from 1 October 2022, results in waiving off the condition in Production Sharing Contracts (PSC) to sell crude oil to the government or its nominee or government companies.

As per the current practice, the central government decides the quantity of crude that a refinery will get from each producer. With the waiver of the clause, exploration and production (E&P) companies will be free to sell oil from their fields in the domestic market, to other private refiners, rather than being confined to selling the crude to government refineries.

While, government revenues like royalty, cess, etc. will continue to be calculated on uniform basis across all contracts, exports will not be permissible as in earlier policy.

The deregulation of sale of domestic crude will help companies like Oil India get better realisations for crude which in turn would boost the centre's royalty and cess income as they are charged as a percent of the price. Cess is pegged at 20 per cent, while the royalty is pegged at 20 per cent for onshore and 10 per cent for offshore production.

The higher royalty and cess income will help government to cover the Rs 1 lakh crore revenue loss due to excise duty cut on petrol and diesel.

According to the government, the decision will further spur economic activities besides making investments in upstream oil and gas sector a more attractive prospect. This is strategically important in the context of the government’s efforts to ramp up domestic crude oil production which has been in a state of consistent decline since 2015.

From 35.7 million tonnes in 2017-18, it dropped to 34.2 MT in 2018-19, 32.2 MT in 2019-20 and 30.5 MT in 2020-21. In FY22, India managed to produce just 28.4 MT of crude oil, which was 11.67 per cent below the target of 33.61 MT, as per Oil Ministry data.

A series of targeted and transformative changes in policies relating to production, infrastructure and marketing of oil and gas have made processes more transparent, focused on ease of doing business and oriented towards more operational flexibility to operators/industry.

Following introduction of revenue sharing contracts under Hydrocarbon Exploration Licensing Policy (HELP), a large number of blocks have been allotted through several bidding rounds and allocation of acreage has almost doubled as compared to the area awarded before 2014. Since February 2019, reforms have focussed on production maximisation with no revenue sharing for difficult basins other than windfall gain.

There has, however, been little change in the situation with output remaining low even as India continues with a high oil import bill amid surging global crude oil prices triggered by geopolitical tensions.

India, the world’s third biggest oil consuming and importing nation, paid out $119.2 billion in the financial year 2021-22, double from the $62.2 import bill in the previous fiscal, according to official figures.

Also Read: Now Russia Is Possibly The Largest Supplier Of Crude Oil To India

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