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India deregulates sale of domestically produced crude oil

The move will lead to pricing and marketing freedom in the sector and boost production, Anurag Singh Thakur told reporters in New Delhi.

June 29, 2022 / 04:46 PM IST
(Representative image)

(Representative image)

 
 
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India’s cabinet has approved a proposal which will allow upstream oil companies to sell crude oil to any company in the domestic market, a move that will boost the exploration and production sector, the information and broadcasting minister said on June 29.

The move will lead to pricing and marketing freedom in the sector and boost production, Anurag Singh Thakur told reporters in New Delhi.

"It will cut down imports in the longer run," he added. "There will be no revenue loss."

India imports 85 percent of its crude oil needs. Elevated crude oil prices have an inflationary impact on the economy and hurt its macroeconomic indicators.

Currently, the central government decides the allocation of crude oil and condensate from the different producers to the state-run refineries. This will cease from October 1. The government will waive off the condition in the production sharing contracts to sell crude oil to the government, its nominee or government companies. 

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While the export of domestic crude oil would continue to be prohibited, the exploration and production (E&P) companies like the state-run ONGC will be free to sell crude oil from their fields in the domestic market. 

The revenue earned by the government in the form of royalty and cess will continue to be calculated on a uniform basis for all contracts. The decision is aimed at boosting E&P activities in the country, which have languished. 

“This decision will further spur economic activities, incentivize making investments in upstream oil and gas sector and builds on a series of targeted transformative reforms rolled out since 2014. The policies relating to production, infrastructure and marketing of oil and gas have been made more transparent with a focus on ease of doing business and facilitating more operational flexibility to operators/industry,” the government said in a statement. 

India’s domestic crude oil production has been declining consistently since the financial year 2014-15. A decline in domestic production even as demand soars has led to steady rise in imports. In 2021-22, India’s crude oil production was 29.69 million tonnes, 2.63 percent lower than the 30.5 million tonnes output a year back ago. It was 11.67 percent below the target of 33.61 million tonnes for the year. 

“Government has carried out several progressive reforms in Exploration and Production (E&P) Sector in last eight years such as pricing and marketing freedom for gas, discovery of gas price through competitive e-bidding process, introduction of Revenue Sharing Contracts under Hydrocarbon Exploration Licensing Policy (HELP), etc. A large number of blocks have since been allotted through several bidding rounds. As a result of these efforts, allocation of acreage has almost doubled as compared to area awarded before 2014,” the government statement said. 

Since February 2019, reforms have focused on production maximization with no revenue sharing for difficult basins other than windfall gain.
Moneycontrol News
first published: Jun 29, 2022 03:27 pm
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