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Vedanta for an independent regulator for oil and gas sector

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As government debates on gas price hike and a new contract for oil and gas exploration, Vedanta Resource on Friday said domestic rates should be linked to international markets and an independent regulator be set up.

Speaking at an Oil & Gas Seminar organised by Indian Chambers of Commerce, Vedanta chief executive Tom Albanese said "the current policy environment fostered uncertainty and did not encourage intensified exploration and production of domestic resources."

He, however, backed the Oil Ministry move to replace the controversial Production Sharing Contracts (PSC) for oil and gas exploration with simpler revenue-sharing regime.

The new regime where companies will bid upfront the quantity of oil and gas they will share with the government, will replace PSC regime that allowed investors to recover all their cost before sharing any spoils with the government. This model was criticised by CAG which said it encouraged companies to keep raising cost so as to postpone higher share of profits with the government.

"I believe the Government's recent initiatives to introduce a revenue sharing model is one such change that will minimise cost recovery issues and delays that have led to uncertainties for producers.

"Extending this principle to establish an independent regulator for the sector would be another great decisive step," he said.

Similarly, to convey a strong message to international investors, "it is important to link oil and gas prices to international markets. Timely and right price enable investors to plan their investments and optimise production," he said.

The government is currently debating a new gas pricing mechanism to replace the Rangarajan formula which would have doubled rates to USD 8.4 per million British thermal unit.

He said: "For instance, not allowing private sector to fully exploit unconventional hydrocarbons Shale Gas is a limiting factor for enhanced private sector participation. Such differentiation creates artificial boundaries and makes risk capital averse to the Indian market".

Life of PSCs is another apt example. "Limited tenures with provisions of multiple renewals do not allow companies and investors to put in place business plans that maximise output over the economic life of the field," he said.

Vedanta Group firm Cairn India is seeking extension of the contract for Rajasthan oilfields beyond their current term ending in 2019.

"All these dissuade flow of capital. Capital is very mobile. Countries compete to attract capital to spur economic growth. Delays in statutory approvals coupled with frequent policy changes lead to an uncertain economic environment that adversely impacts overall investment climate and flow of risk capital," he added. 

Albanese said a simple and forward-looking policy to encourage investment that maximises domestic oil and gas production would be a key enabler for India.

Adopting a strategic vision for our exploration and production sector and following through with a stable policy regime can be a game-changer for India's upstream oil and gas landscape, he said.

He suggested creating "an enabling environment for companies to commit significant risk capital to incentivise exploration and leverage domestic resources."

Also, the government should adopt a contractual framework with a consistent life-of-field business view that provides the necessary investment security, he added. "Establish a Governance model which is based on principles of self-certification with appropriate compliance and oversight," he said.

Albanese said the demand for natural resources, especially energy, will rise significantly due to steady, high, sustained economic growth. "China, India and other emerging markets will drive the global energy consumption."

Maximum value, he said, can be created by encouraging domestic production of hydrocarbons in India. Stating that the new government has a chance to correct anomalies, he said he was happy to see winds of change including the emphasis on a governance model which is based on principles of maximum governance minimum government.

"US provides an excellent example of a case study where exploration and new technologies have reduced its dependence on imported oil.

"Simple policy framework, predictability of taxes and fiscal regime, maintaining contract sanctity and facilitating private sector capital are key levers which have been effectively utilised by the US. This led to their energy renaissance," he said.

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