One of the most influential and more vulnerable commodities that fluctuates the price of almost everything on earth is oil. A reasonable, cheaper and affordable oil can instantly reduce the prices from groceries to heavy machineries, leading to a much stable economy. The volatility of the entire range of manufacturing, service and business sectors across the globe revolves around the pricing of oil only.
In a developing country like India, people expect Government to provide cheaper and affordable oil & gas, a factor that is responsible for influencing their monthly budget. This is quite possible. Cairn India produces oil at 4 dollars per barrel. What perhaps people do not know that later almost 70 dollars per barrel goes to the Government as royalties & taxes. Cairn India share is just about 20%, less than even what one would pay to the Architect to build the house. We are too small and what we require is Government support.
Government Must Honour Contracts and Commitments
Cairn India is paying close to Rs. 24,000 crore per annum to the Government. This can go upto Rs. 50,000 crore, which is highest royalty & taxes in the corporate sector. But the Government has imposed an additional royalty, a cess of 5%, which has put additional burden of Rs. 7,000 crore annually on Cairn India.
Unfortunately, this is the first time in the history of India, where original contract has been dishonoured by the Government itself. We urge and expect the Government to reconsider their decision of imposing heavy financial burden through this additional levy on Cairn India and make the production from marginal fields more viable. This will only enhance credible image of the Government in the international market and a message would circulate that India wants companies to invest and is not averse to companies making reasonable profits. This can be easily done by honouring the contracts and commitments.
Self Declaration Should Be Encouraged
We are concerned about the time consuming clearances from the Ministry of Petroleum & Natural Gas, and ONGC, which is our 30% partner. Why can’t we move to a procedure of self declaration and post audit system which would only help in increasing the production through timely investments? To mention, Cairn India’s automatic extension of the licenses is also long awaited, which will only facilitate long term capital infusion.
If the investments in exploration and expansions are speeded up and bottlenecks are removed, it would also substantially increase the contribution to the Government coffers.
PMO To Monitor Oil & Gas Clearances
Oil & Gas being one of the most influential commodities, the PMO may like to monitor all important clearances and expedite the same.
It is a question of our energy security. If we can produce oil at 4 dollars why import at 100 dollars, making our country poor and deprive employment generation. We must realize that we are sitting on a large pool of oil and gas. We need at least 20 large companies and our Indian entrepreneurs should be encouraged to take this challenge.
No Discrimination in PSU and Private Sector
There should not be any discrimination between public and private sector. Incidents like ONGC being recently allowed to produce shale gas and private sector denied hurt business sentiments.
Most of the companies re-deploy their profits if fully incentivised. That is what China and America have done. America is self sufficient with this simple policy and allowing the people to make reasonable money. We can eradicate poverty by creating more jobs for our future generations by adopting similar or suitable policies.
Cairn India is a proven game changer and has the potential to be an example of India’s success in the global oil market. The Company has been successful in producing commercial gas as well.
Government has allowed the transaction of Cairn India, the largest deal in Indian history, where in 14 billion dollar company has been transferred and the international investor has been allowed to exit and repatriate profits. Cairn India is undoubtedly a show case model to international investors.
I have always said, India has enough potential to produce worth USD 400-500 billion in natural resources like oil & gas, gold, silver, iron ore, copper, coal, calcium, rock phosphate and others. It is bound to generate substantial revenues, of which more than 50% would go to the government, which will be helpful in development of infrastructure for the country. This will also create employment for 10-15 crore people, by way of setting-up over 1000s of new large, medium and small scale industries towards processing and further manufacturing. GDP will improve, deficit will reduce and a win-win situation for all. Investment in exploration is must for our future generation. The model may be revenue sharing or whoever pays higher Royalty.
Article authored by Mr. Anil Agarwal Chairman – Vedanta Group
