Government should move away from micromanaging the oil secto

[admin]

Activists of the India Against Corruption (IAC) campaign have just made a flurry of accusations, about the alleged complicity of national parties in promoting the business interests of Reliance Industries. One reason why such accusations flourish is the opacity of current procedures, under which the government has vast licensing powers in important areas like natural resources. Instead of a straightforward sharing of revenues predicated on a system of transparent and competitive bids for oil and natural gas production contracts, the current system allows producers to first recover their costs, statements about which are then vetted by the oil ministry. Such a system only enhances the possibility of collusion as well as incentives for companies to increase their profits by padding their costs. This should be replaced by a system that allows discovery of the market price of gas, and is aligned to international best practices.
The bidding process currently used for awarding exploration and production licences in the oil sector suffers from various ambiguities and has failed to attract global majors to the oil sector. There is a tendency to micromanage this industry, which is not only far beyond the existing capabilities of the government machinery but also routinely invites charges of collusion. Finding a way out of this mess would require that government redraw its hydrocarbon exploration and production policies in tune with global benchmarks, by reducing its discretionary powers and allowing a greater role to the market in the production, distribution and pricing of petroleum and natural gas. Such policies will enhance India’s energy security, which in turn is crucial for future growth and prosperity.