The government’s plan to offer tax incentives based on investments made by companies is expected to attract big overseas investments in the next round of bidding for oil and gas blocks. The investment-linked tax concessions proposed in the Direct Taxes Bill will provide a big incentive to overseas firms, which stayed away from the earlier rounds of bidding. Under the current scheme of exempting profits from tax, the firms don’t benefit unless they find commercially viable oil or gas reserves.
The oil ministry has identified 34-35 blocks to be auctioned under the ninth bidding round, or Nelp-IX. Oil minister is visiting London next week to meet potential investors. The proposed move will also settle the issue of granting tax holidays for producing natural gas, two government officials with direct knowledge of the matter said. Petroleum and finance ministries are working out the modalities, one of them said, requesting anonymity.
“Energy security is the country’s top priority and the government will do everything possible to attract investment,” petroleum minister Murli Deora told ET, but declined to provide any detail on the tax issue.
“The finance ministry had granted tax holidays for both oil and gas (production) in Nelp-VIII,” he said. India bids out its oil and gas exploration blocks under the (Nelp).
The concept is attractive for investors as exploration and production (E&P) is a high-risk business, said Arvind Mahajan, head of energy & natural resources at consulting firm . “It should also bring (natural) gas on a par with (crude) oil. This confusion is detrimental for the energy security as gas is the future fuel and shale gas is likely to be the game changer,” he said.
As per the current practice, oil companies get a seven-year tax holiday on their income from selling crude oil from a block, but same is not available for natural gas production. A one-time exception was made for Nelp-VIII. Mr Deora will show-case two recent success stories of India’s energy sector — gas production by Reliance Industries’ (RIL) KG-D6 basin and crude oil production in Barmer (Rajasthan) by Cairn India.
“KG-D6 has increased country’s domestic gas production by 75% and Rajasthan oil field has increase crude production by 18%,” Mr Deora said. Cairn’s oil production will increase India’s domestic crude output by 25% in the next one-and-a-half years as production goes up from current 125,000 barrels per day to 175,000 per day by 2011-12.
RIL executive director PMS Prasad and Cairn India CEO Rahul Dhir are expected to join Mr Deora in the London investors’ meet to pitch for the country, an oil ministry official said. “The next round will offer 10-11 deepwater blocks. Most of the blocks are located in Cauvery basin, Kutch basin, Andamans and Assam. We deliberately have small number of blocks this time, but they are highly prospective as per available data,” he said.