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Cairn India wants government to lift ban on crude exports; seeks 10-year extension of PSC

Date 01-June-2015
Subject Cairn India wants government to lift ban on crude exports; seeks 10-year extension of PSC

NEW DELHI : Cairn India, which has suffered due to low oil prices, wants the government to allow it to export crude oil, quickly extend its contract for the Rajasthan block and increase the price of natural gas, its finance chief said.

The subsidiary of the London headquartered Vedanta Resources made one of India's biggest oil discoveries in the Rajasthan desert, but the contract expires in five years. It has been negotiating for extension of the contract for the past two years. It is also battling the government in court over a tax demand of $3.3 billion.

The fall in global oil prices has made matters worse for the Gurgaon-based company. It is seeking a higher price for the oil, which it may get if it is allowed to export, but this is not allowed in the country that imports nearly 80% of the oil it consumes. Chief Financial Officer Sudhir Mathur told ETthat the government should either lift the ban on crude oil export or ban the export of refined products as well.

The company promoted by billionaire Anil Agarwal is also seeking a 10-year extension of its production sharing contract that expires in 2020. Mathur said the company needs a quick decision on this so that it can plan investments. "If we are supposed to be working on quantifiable things..., the government has also to work on certain deadlines," he said.

There is no formal word from the government on this but earlier media reports suggest it may seek a higher share in the profit on petroleum from the block for the extended period.

Mathur said the frequent change in key officials in the oil ministry also contributed to the delay. "How can they have consistency in interpretation of a policy if the three people don't even work together for three years?" he said, referring to the changes in key positions of the secretary, the joint secretary for exploration and the Director General of Hydrocarbons (DGH).

Mathur counted diesel deregulation and successful implementation of direct transfer of LPG subsidy as some of the key achievements of the Modi government since it took charge a year ago, but said the gas price formula introduced by the current government is a disincentive for explorers. "Today the pricing of gas is very low to incentivise anybody to produce. Extremely low," he said.

Besides allowing for a market price for gas and crude oil, the government needs to install an independent regulator, remove duty discrepancies, allow for export of crude from local fields and retain cost-recovery model to revive the exploration and production sector, Mathur said. "You cannot have a regulator, which reports to the ministry... DGH would always succumb to the interpretation of the PSC (production sharing contract) which the government wants," he said.

The government is finalising a new policy for auction of exploration and production of oil and gas blocks that will figure in the next round of bidding. The policy will likely make a shift to the revenuesharing model from cost-recovery now where operators get to recover their cost fully before sharing profit with the government.

Source :

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