With lot of talk on oil reforms doing the round in India Fereidun Fesharaki, Chairman, FACTS Global Energy said it would be best if Indian government focuses on giving more incentives to domestic oil companies because the conditions at present are not ripe for international investors to invest in India.
On the new exploration licensing policy (NELP) front, he said the demand is very anemic and companies outside India don't seem interested in it. The government needs to create conditions that would excite international companies. Even within India it would only be ONGC that would be interested, he added.
The oil ministry is hoping to attract investments under NELP X via tax holidays. In a draft CCEA note floated in late December, the oil ministry has called for a 10-year tax holiday for ultra deepwater water blocks, and a 7-year tax holiday for all other kinds of blocks be it on land, shall water etc.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: There has been a lot of talk about oil reforms in India, how much possibility do you possibly even attach to these oil reforms and how much could they even help boost investor sentiment if that is the case?
A: The current government petroleum minister, petroleum secretary probably have done more work on the reform side than anybody else in the past 20-30 years. So a lot of reform has taken place. However, there are key issues which still need to be tackled.
One is how do you encourage Indian companies to produce more oil? Do you move to a revenue sharing programme because today in the press there was one of the proposal of the Rangarajan committee? Or do we keep the existing production sharing contracts? My belief is that the existing contracts is superior to what is proposed. So, unless that change something, which works to something, which may not work.
The other one is do we increase the prices of oil paid to the domestic companies from USD 41/bbl to USD 65/bbl to give more incentives? I believe we should, this government can still do it before its term runs out and they are some very positive moves which can be taken in the next three months.
Q: The notification regarding the gas pricing recommendation somewhere around USD 8.5-9/bbl has already come through, how do you read the developments over there?
A: Oil prices in India are not that far away from the international market. Domestic price subsidies have been reduced significantly. So there was a time for a move on the gas side. Today, India imports gas at USD 13 mmbtu, so USD 4 mmbut doesn’t make sense.
Q: What I wanted to concentrate on was that your interaction with investors. How concerned do you think they are now about the government’s interference within the oil space?
A: There are two category of investors - international investors and domestic investors. The conditions are barely ripe for the domestic investors to invest. Certainly the conditions are not ripe for international investors. I don’t see a flood of companies rushing to India, although I think India still has a lot of oil to be produced and developed. The prospectivity is not that great but the conditions are also not so great. I don’t see a big rush.
I think the best India can do is to try to give enough incentive for the domestic companies to invest and that requires raising up prices, which Oil and Natural Gas Corporation (ONGC) gets for domestic production.
Q: What is your take on new exploration licensing policy (NELP) and do you see a lot of demand for it once it kicks off?
A: I think that the demand for NELP is going to be very anemic. I don’t see many people outside of the Indian companies interested and even inside of India, it is going to be mostly one company that is ONGC.
So it is of some value but the condition is to try to create excitement for international companies, which has not been created as yet.
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