India sweetens exploration terms
India has proposed a new exploration licensing policy that outlines a comprehensive fiscal package with sweetened incentives for private investment and drops a requirement for private companies to take on state petroleum companies as partners.
The policy also envisions creation of a hydrocarbon development fund to promote and fund exploration-related activities, while special fiscal incentives have been proposed for exploring frontier and deepwater areas.
The policy seeks to provide a level playing field for state firms Oil & Natural Gas Commission (ONGC) and Oil India Ltd. (OIL) by giving them the same fiscal and contract terms available to private companies. Companies including ONGC and OIL are expected to be paid international prices for oil produced from blocks offered under the new policy.
ONGC and OIL will, however, have to compete with private firms to obtain petroleum exploration licenses instead of the current practice of getting them on a nomination basis.
ONGC and OIL also will be exempted from payment of customs duty on import of goods required for exploration operations, as is currently allowed private companies.
In addition to not being required to join with ONGC and OIL in exploration work, private companies also will be free to market crude oil and gas in the domestic market.
Earlier provisions requiring signature and discovery or production bonuses would be eliminated, as would payment of petroleum exploration license fees or area rentals. Exploration blocks under the new policy will be allotted under an open acreage system.
Royalty incentives
The fiscal package calls for a royalty payment of 12.5% for onshore areas and 10% for offshore areas. Of the total royalty, half from the offshore area will be credited to the proposed hydrocarbon development fund.
Royalties will be halved for deepwater (exceeding 400 m) and frontier areas for the first 7 years after start of commercial production. In addition, a 7-year tax holiday after beginning commercial production will be given for exploration and production in the northeastern region of India.
A separate petroleum tax code is to be put in place to facilitate investments in this sector.