India changes internal price system to boost exploration

Jan 10, 1997 01:00 AM

India, facing falling crude output and a burgeoning oil price subsidy bill, mapped out a future exploration policy designed to pay all companies international prices for crude pumped from new fields. "The government's aim will be to bring a lot of investment into the exploration sector. There is a lot of oil in the ground but not enough funds for investment," an oil analyst told. Indian state owned companies like Oil and Natural Gas Corp. (ONGC) and Oil India, which produce more than 90 % of India's oil output, are currently paid only around $ 11 to $ 12 a barrel for their crude, while private companies receive international market prices of $ 22 to $ 23. The Petroleum Ministry told an industry conference in New Delhi that the national companies should expect equal treatment in future bids for exploration licences. India is fighting to reverse a slump in crude oil output. Production is expected to fall to 27 million tonnes, about 540,000 bpd, in the year ending March 1997, down from around 31 mmt or 620,000 bpd the previous year. The country is expected to run up an oil import bill of some $ 9.6 bn in 1996/97 (April-March), and consume around 81 mmt or 1.62 mmbpd.
India operates a system of administered petroleum product prices, and pays the subsidy out of an oil pool deficit account, which is expected to reach 200 bn rupees ($ 5.5 bn) in 1996/97. The draft proposal should be ready to be submitted to the government for approval within two months. "The main highlights of this new exploration licence policy are that national oil companies like ONGC and OIL will be able to compete with private companies securing petroleum exploration licences," a ministry official said. "The new system applies for the new fields that will be awarded after this exploration licence policy comes into effect." State companies will still be paid under the old administered price regime for their existing production. The official said there would also be incentives for production from deep sea and frontier areas, and some concessions on royalties for marginal fields. Separate and more attractive fiscal regimes for deep water, will also be part of the new exploration policy, as well some provision for adjustment of royalties in the case of economically marginal fields. "It will create a level playing field for the national oil companies, particularly by paying them international market prices for oil. The crude price that the government pays these companies will be the same as the international market price of oil."

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