The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, recently approved the Hydrocarbon Exploration and Licensing Policy (HELP). ( This is an important development with regard to governance architecture of natural resources in India. This topic has the potential to be asked in UPSC Prelims as well as in Mains GS paper –II– under “Government policies and interventions for development in various sectors” or in GS Paper-III under “ Infrastructure: Energy”)
Q) What is this policy all about?
- It is a new contractual and fiscal model for award of hydrocarbon acreages and is aimed at enhancing transparency and reducing administrative discretion.
- It will award Uniform licencethat will enable the contractor to explore under a single license conventional as well as unconventional oil and gas resources including CBM, shale gas/oil, tight gas and gas hydrates
Q) What are the Guiding Principles of this policy?
- Enhance Domestic oil and gas production
- Bring substantial investment
- Generate sizable employment
- Enhance Transparency
- Reduce Administrative Discretion
Q) What are the main facets of the policy?
- The HELP policy has four main facets
- Uniform license for exploration and production of all forms of hydrocarbons
- An open acreage policy.
- Easy to administer revenue sharing model and
- Marketing and pricing freedom for the crude oil and natural gas produced.
- Q) How is this model different from the previous model?
- The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the contractor after recovery of cost.
Q) What was the problem with the previous model?
- Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes
Q) It is said that the new model will improve the “ Ease of Doing Business”- How?
- Under HELP, the Government is not worried about the cost incurred by the contractor. The contractor has full freedom and flexibility.
- Government will only be receiving a share of the gross revenue from the sale of oil, gas etc.
Q) Is this policy an example of “ Minimum government and maximum governance?
- Yes, here the government will not involve much and the contractor has full marketing freedom for crude oil and natural gas produced from these blocks.
- The new model would eliminate the areas of disputes in contract such as
- Cost Recovery related issues
- Rigidities in procurement
- Delays in implementation
- Issues such as royalty,
- Compliance of Production sharing contract provisions
Q) From the examination point of view – what should one write for the question- what are the Salient features of the policy?
- The salient features of Hydrocarbon Exploration Licensing Policy (HELP) are
- Single License for exploration and production of conventional as well as
non-conventional hydrocarbon resources
- Open Acreage Policy-option to select the exploration blocks without waiting for
formal bid round.
- Revenue Sharing Model is simple, easy to administer, no cost recovery,
no micro-management by the Government, operational freedom to the operator, pricing and marketing freedom which is a major incentive for investment
- Minimum regulatory burden-ease of doing business
- Government Audit- limited only to production and revenue
Q) For better understanding: A Quick Comparison between HELP and NELP
|Fiscal Model||Revenue sharing||Profit sharing|
|Cost recovery||Not applicable||Yes|
|Royalty||Low rates for offshore||Standard rates|
|Exploration Period||7 years-Onland and Shallow Water 8 years- Deepwater||8 years- Onland and Shallow Water – 10 years -Deepwater & Ultradeepwater|
|Management Committee||No micro-management||Technical & financials examination|
|Revenue to Government||On production||After cost recovery|
|Exploration activity for all hydrocarbons||Allowed||Not allowed|
Q) Some background info about previous policy.
- Government of India formulated a policy called New Exploration Licensing Policy NELP in 1997.
- The main objective was to attract significant capital from Indian and Foreign companies along with state of the art technologies.
- Since then licenses for exploration are being awarded only through a competitive bidding system and National Oil Companies (NOCs) are required to compete on an equal footing with Indian and foreign companies to secure Petroleum Exploration Licences.
- 100% FDI is allowed under NELP.
- A Model Production Sharing Contract (MPSC) which is reviewed for every NELP round.
- Nine rounds of bids have been concluded under NELP, in which production sharing contracts for 254 exploration blocks were assigned.