NITI Aayog draws up more oil and gas reforms

Vol 25, PW 12 (19 May 22) People & Policy

No one would argue that far-reaching reforms are needed to revive the Indian oil and gas sector.

This explains why a list of proposals from the NITI Aayog government policy think-tank is receiving strong industry backing. A well-placed industry source tells us NITI Aayog is discussing responses received in April 2022 from the Federation of Indian Petroleum Industry (FIPI) and Association of Oil and Gas Operators (AOGO) to a 17-page draft set of proposals sent to them in March 2022.

"FIPI and AOGO endorsed the proposals," confirms an industry source. "Neither has sent substantial additions."

He expects the final proposals to go for cabinet approval soon. Among the ten recommendations is to provide a level playing field on taxation for pre and post-NELP blocks.

Operators of pre-NELP blocks and blocks awarded without tender pay a 20% 'oil industry development cess' (tax) on produced crude oil, not charged on NELP, OALP or HELP blocks. "To provide a level playing field, rationalising OID cess in a graded way could be a starting point," suggests NITI Aayog.

Another idea is equal tax rates for Indian and foreign companies. Indian companies pay 25.17% tax, including a 'base' rate of 22%, a 'surcharge' of 10% and a 4% 'cess'.

Foreign companies without an Indian subsidiary pay 43.68% tax, including a 40% 'base' rate, 5% 'surcharge' and 4% 'cess'. Yet another suggestion is "consistency in applying regulations to avoid disputes".

For instance, the Oilfields (Regulation and Development) Act, 1948 says royalty is payable on the well-head price of oil and after accounting for expenditure after the well-head. But the DGH often does not agree, leading to disputes that "negatively affect business sentiment."

NITI Aayog also wants to incentivise enhanced oil recovery projects with 'viability gap funding' or government grants of up to 20% of project costs. Other recommendations are the creation of a DGH cell to obtain all clearances before blocks are offered; the smooth extension of contracts based on established terms and conditions with no increase in government share; petroleum products included in the GST regime; complete marketing and pricing freedom for gas, and the price should be discovered on the gas exchange.