Anupam Mathur, Executive Director and CEO, Tata Petrodyne Limited
Exploration and Production licensing models have
their own pros and cons, says Anupam Mathur,
Executive Director and CEO, Tata Petrodyne Limited.
Royalty and tax model is currently being adopted by
many countries successfully for the model has its own
advantages. With the increase in production, there is
a built in incentive for both the government and the
investors. The government is spared the botheration
of keeping track of cost recovery, and the investors
are relieved from following the cumbersome
prescribed Government processes and seeking large
number of approvals.
Contrary to this, in the PSC regime, with the increase
in production, the other stakeholders’ incentive
goes down while the government’s profit share
goes up. “It is, thus, not an attractive option for the
other stakeholders or investors,” says Mathur. The
investors put in their money in the exploration, and
if the venture is successful and there is discovery, the
government reimburses the money to the investors,
in the form of cost recovery from its own share of
profit. “Initially, since the PSC model was marked
by risks and uncertainties, investors were hesitant
investing their money into it. The government then
introduced the cost recovery mechanism, where the
investor, if successful in the venture, can recover the
cost of the same besides making reasonable profit.
The government then have a walk-in option after the
completion of the exploration and appraisal phase,
with a 30-40 per cent participating interest,” adds
Mathur. Cairn, as for example, has made a commercial
discovery in the Rajasthan block, and ONGC, as a NOC,
exercised the option of walking-in as a government
nominee, with a 30 per cent interest in the PSC.
“ONGC, in this block, has invested in the development
phase and not in the exploration phase. Risk money
during exploration phase was invested by Cairn, and
once the block was declared as commercially viable,
the government exercised the option of walking-in,"
Mathur further says.
Bringing another drawback of the PSC regime,
Mathur says, “Some of the PSC model has specific
clauses, which are not very conducive for free
business viz Domestic Market Obligation (DMO). A
portion of hydrocarbon produced has to be sold in
the domestic market at the pre-determined prices
regulated by the government. Any changes in its
conditions is a long process, as the investors have to
await government approvals. It’s more beaureautric
and less business-oriented approach.” adds the CEO.
Despite the disadvantages, the investors are willing
to undertake the exploratory risk on the condition
that they are paid a fair return after discovery efforts.
“But with the market price control on output and not
on inputs, investors do not have much incentive.
Regulatory control in the PSC regime definitely
slows down the process,” to put it in Mathur’s words.
“Generally, excessive control makes a country less
attractive for the investors.”
Tata Petrodyne is working in Australia under Royalty
and Tax model, and “it is working very well over
there. If the model is emulated in India, it should
work well in quick monetisation of the assets and
attracting more investors into the country,” says
Mathur. “Australia’s systems and policies make it
a lucrative place for investment for the companies
and stakeholders. However, the country has other
limitation like availability of human resources.”
To conclude in Mathur’s own words, “C Rangaranjan
committee has been mandate d to submit
recommendations for bringing about an improvement
in the PSC regime in India. The committee is studying
various PSC models from different countries and picking
up the good features from each of these, some of which
would hopefully be incorporated in the proposed PSC
contract. But the implementation has to be swift and
simplified which remains to be seen.”