HELP - GS questions based on daily current affairs

ANSWER: Both 1 and 2

Explanation:

• There will be a uniform licensing system which will cover all hydrocarbons, i.e. oil, gas, coal bed methane etc. under a single license and policy framework.
• Contracts will be based on “biddable revenue sharing”. Bidders will be required to quote revenue share in their bids and this will be a key parameter for selecting the winning bid. They will quote a different share at two levels of revenue called “lower revenue point” and “higher revenue point”. Revenue share for intermediate points will be calculated by linear interpolation. The bidder giving the highest net present value of revenue share to the Government, as per transparent methodology, will get the maximum marks under this parameter.
• An Open Acreage Licensing Policy will be implemented whereby a bidder may apply to the Government seeking exploration of any block not already covered by exploration. This will enable a faster coverage of the available geographical area.
• A concessional royalty regime will be implemented for deep water and ultra-deep water areas. These areas shall not have any royalty for the first seven years, and thereafter shall have a concessional royalty of 5% (in deep water areas) and 2% (in ultra-deep water areas).
• In shallow water areas, the royalty rates shall be reduced from 10% to 7.5%.
• The contractor will have freedom for pricing and marketing of gas produced in the domestic market on arm’s length basis. To safeguard the Government revenue, the Government’s share of profit will be calculated based on the higher of prevailing international crude price or actual price.
• The introduction of the concept of revenue sharing is a major step in the direction of “minimum government maximum governance”, as it will not be necessary for the Government to verify the costs incurred by the contractor.

ANSWER: Neither 1 nor 2

Explanation:

• The present policy regime for exploration and production of oil and gas, known as New Exploration Licensing Policy (NELP) has been in existence for 18 years.
• Presently, there are separate policies and licenses for different hydrocarbons. There are separate policy regimes for conventional oil and gas, coal-bed methane, shale oil and gas and gas hydrates.
• In practice, there is overlapping of resources between different contracts. Unconventional hydrocarbons (shale gas and shale oil) were unknown when NELP was framed.
• This fragmented policy framework leads to inefficiencies in exploiting natural resources. For example, while exploring for one type of hydrocarbon, if a different one is found, it will need separate licensing, adding to cost.
• The Production Sharing Contracts (PSCs) under NELP are based on the principle of “profit sharing”. When a contractor discovers oil or gas, he is expected to share with the Government the profit from his venture, as per the percentage given in his bid. Until a profit is made, no share is given to Government, other than royalties and cesses.
• Since the contract requires the profit to be measured, it becomes necessary for the cost to be accounted for and checked by the Government. To prevent loss of Government revenue, there are requirements for Government approval at various stages to prevent the contractor from exaggerating the cost. Thus, leading to delays and disputes.
• Another feature of the current system is that exploration is confined to blocks which have been put on tender by the Government. There are situations where exploration companies may themselves have information or interest regarding other areas where they may like to pursue exploration. Currently these opportunities remain untapped, until and unless Government brings them to bidding at some stage.