Kelkar- Oil Sector Reform

To bring down the nation’s oil import bill Kelkar recommended following reforms in oil sector:

Institutional Reforms:

1. Create an empowered Cabinet Committee on Energy for policy formulation and integration of energy related issues; will remove policy paralysis.
2. Make DGH an independent regulator for upstream oil & gas sector on the lines of SEBI; more teeth to DGH to resolve issues.
3. Create a national databank of basins; enhance transparency.
4. Create an independent cadre of staff for downstream regulator (PNGRB); stability to PNGRB.
   

Fiscal:

1. Cover oil & gas under GST to simplify & standardize taxation norms ensuring similar country wide pricing.
2. Extend definition of mineral oil as used in Oilfields Regulation & Development act to IT act-1965; to standardize taxation.
   

Pricing:

1. Market linked pricing for natural gas to incentivize higher exploration & production making stranded fields viable; increased domestic production will reduce imports.
2. Wave off custom duty on imported LNG to boost demand in general
   

Contractual:

1. Favored PSC over RSC due to misaligned risk return structure of the latter; RSC often a cause for lower level of production as riskier fields in deeper waters are not bided & exploited.
2. Ensure absence of retrospective clauses/changes in contracts to bring clarity in contracts.
3. Extension of contract tenure up to economic life of asset (oil field) to boost investor sentiments.
   

Policy:

1. Bring open acreage licensing policy by 2016 to allow upstream companies to bid for any oil & gas block without waiting for announcement of bidding under NELP regime.
2. To boost investment in exploration allow equity participation to foreign firms in nominated fields.

The above recommendations can be thoughtfully implemented to reduce country’s oil import bill.