Energy: Oil and Gas 2019

Last Updated August 09, 2019

India

Law and Practice

Authors



J. Sagar Associates (JSA) is a leading national law firm in India comprising over 300 lawyers and consultants, including partners, with offices in Ahmedabad, Bengaluru, Chennai, Gurgaon, Hyderabad, Mumbai, GIFT City and New Delhi. JSA has significant experience in handling diverse assignments in the oil and gas sector. JSA's oil and gas practice, which includes advising and assisting various stakeholders in the hydrocarbon value chain, is handled by a team having significant domain expertise. It includes advising on a wide range of transactions and advisory mandates involving constitutional, legal, regulatory, contractual, and policy-related issues. JSA regularly advises clients on drafting and negotiating contracts relating to upstream, midstream and downstream activities, such as supply contracts, gas/petroleum products transportation contracts, production sharing/revenue sharing contracts, joint operating agreements, LNG sale and purchase agreements, gas sale and purchase agreements, gas tolling agreements, port concession agreements, shipping agreements (time charter/voyage charter, etc), offtake agreements, EPC contracts and related agreements.

India has a federal constitution, pursuant to which the legislative powers are distributed between the federal and the state legislatures. Under the Constitution of India, the regulation and development of oil fields, mineral oil resources, petroleum and petroleum products falls within the jurisdiction of the Parliament, which is the federal legislative body of India. On the other hand, state governments have the power to regulate matters such as right of use and access to land, labour, water and local government. Accordingly, the contract for exploration and production of hydrocarbons is executed by the federal government; however, the licences/approvals for undertaking activities relating to exploration and production from onshore blocks are to be obtained from state governments. For offshore blocks, the federal government has the licensing powers.

The Government of India transfers the right to explore, develop and further produce petroleum through licence/lease, to private entities (contractor, operator, licencee, etc) and, pursuant to the applicable laws, enters into contracts with these entities. The terms of the host government contract (discussed in 2.1 Forms of Allowed Private Investment in Upstream Interests, below) also provide that the federal government is the sole owner of petroleum and shall remain the sole owner for the produced petroleum except where the title has passed to the contractors in accordance with the contract.

The Ministry of Petroleum and Natural Gas (MOPNG) along with its administrative arm, the Directorate General of Hydrocarbons (DGH) are the primary administrative bodies that regulate the upstream segment of the petroleum sector in India. At the state level, there are departments and directorates that regulate and control activities related to petroleum in onshore fields.

MOPNG

The MOPNG is the nodal ministry at the Indian federal government level which supervises the exploration and production of petroleum, as well as its refining, distribution and marketing, import, export, and conservation and administers various pieces of legislation, including the primary legislations governing the petroleum sector of India – ie, Oil Fields (Regulation and Development) Act,1948 and Petroleum Act, 1934 (http://petroleum.nic.in/).

DGH

The MOPNG established the DGH, pursuant to its resolution dated 8 April 1993. The objective of establishment of DGH was regulation and oversight of the upstream activities in the petroleum sector and also to advise the MOPNG in these areas. The responsibilities of the DGH include providing technical advisory to the MOPNG with respect to exploration and optimal exploitation of hydrocarbons. The DGH reviews the exploration programmes and reservoir production of companies for adequacy and advises the Government of India on such activities. The DGH also formulates safety norms and regulations in oilfield operations. The DGH works under the administrative control of the MOPNG and is not an independent regulator (http://www.dghindia.gov.in/).

Further, the Petroleum and Natural Gas Regulatory Board (PNGRB) has been constituted under the Petroleum and Natural Gas Regulatory Board Act, 2006 (PNGRB Act) for regulating the midstream and downstream segments.

PNGRB

PNGRB is an independent regulator for the midstream and downstream sector. It has been empowered to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas (http://pngrb.gov.in/).

Other Key Regulators

The Directorate General of Mines Safety (DGMS) is the regulatory agency under the Ministry of Labour and Employment, Government of India and is responsible for safety of onshore blocks (www.dgms.gov.in/). 

The Oil Industry Safety Directorate (OISD) is the safety regulator for offshore blocks. It has been designated as the competent authority for implementation of the Petroleum and Natural Gas (Safety in Offshore Operations) Rules, 2008 and exercises powers and functions under the rules (http://www.oisd.gov.in/).

The Petroleum and Explosives Safety Organisation (PESO) is a department under the Ministry of Commerce and Industries which administers the responsibilities delegated under the Explosives Act 1884 and Petroleum Act 1934 and the rules made thereunder related to manufacture, import, export, possession, transport, sale and use of explosives, petroleum products and compressed gases (https://peso.gov.in/index.aspx).

With respect to the onshore blocks, the state governments, with the approval of federal government are responsible for grant of Petroleum Exploration Licences (PELs)/Petroleum Mining Leases (PMLs) over the lands vested with the state governments. In respect of the offshore blocks, federal government has the right to issue PELs and PMLs.

In addition to the above, there are other regulatory and administrative bodies, which provide directions on environment, land, labour and taxation-related aspects.

There are various companies engaged in the Indian upstream, midstream and downstream sectors in which the Government of India has majority stake (ie, more than 50% shareholding). Some of the major companies are listed below.

The Oil and Natural Gas Corporation Limited (ONGC) was established in 1955 as the Oil and Natural Gas directorate. Subsequently, it was converted into a corporation. It is a national oil company in which the Government of India holds approximately 64.2% shares. ONGC is a listed entity and is primarily engaged in the upstream segment of the petroleum sector. Its subsidiary, ONGC Videsh Limited (OVL), focuses on investment in upstream oil and gas assets out of India (https://www.ongcindia.com/wps/wcm/connect/en/home).

Oil India Limited (OIL) was incorporated in 1959 as a private company for expansion and development of newly discovered oil fields in the north-eastern part of India. In 1981, OIL became a wholly owned Government of India company. OIL is a listed entity and is engaged in the business of exploration and production of petroleum, transportation of crude oil and production of liquified petroleum gas. As of 31 March 2019, the Government of India holds 61.61% shares in OIL (https://www.oil-india.com/).

Indian Oil Corporation Limited (IOCL) was incorporated in 1959 as an oil marketing entity. In 1964, it merged with Indian Refineries Limited and was renamed as IOCL. IOCL is a listed entity and is engaged in refining of petroleum, transportation of petroleum through pipelines, marketing of petroleum products, and petrochemicals. As of 30 June 2019, the Government of India's shareholding in the company is 52.18% (https://www.iocl.com/home.aspx).

GAIL (India) Limited was incorporated in 1984 as a Central Public Sector Undertaking under the MOPNG for construction, operation and maintenance of the Hazira Vijaypur Jagdishpur (HVJ) pipeline project. Presently, the companies’ business activities focuses towards gas pipeline, gas transmission, marketing and processing of natural gas, transmission of liquified petroleum gas and production and marketing of petrochemicals, etc. As of 30 March 2019, 52.64% shares in the company are held by the Government of India (http://gailonline.com/home.html).

Bharat Petroleum Corporation Limited (BPCL) is a company primarily engaged in the refining and marketing sector. As of 30 June 2018, 53.89% shares in the company are held by the Government of India.

As noted below in 2.5 National Oil or Gas Companies, prior to Pre-NELP and NELP regime (as defined below), the Government of India awarded petroleum acreages to OIL and ONGC on a nomination basis. However, since the start of NELP (1997-2010) and currently applicable HELP (as defined below), the Government of India has consistently followed the international competitive bidding process for award of upstream acreages.

The following are the principal petroleum laws.

  • The Oilfields (Regulation and Development) Act, 1948 (the Oilfields Act) is the primary legislation governing the upstream oil and gas sector. It incorporates provisions relating to licensing and leasing of oil and gas blocks by the Government of India. The Oilfields Act further empowers the Government of India, with rule-making power with respect to mining leases, mineral oil development and royalty rates to be paid by the mining lease-holder.
  • The Petroleum and Natural Gas Rules, 1959 (the PNG Rules) has been enacted under the Oilfields Act. It provides detailed provisions relating to the granting of licences and leases for both offshore and onshore blocks. The PNG Rules prohibit prospecting or mining of petroleum except in pursuance of a Petroleum Exploration License (PEL) or a Petroleum Mining Lease (PML) granted under the PNG Rules. The definition of petroleum under the PNG Rules has been amended in 2018 to include shale and other hydrocarbons to bring it in line with the Hydrocarbon Exploration and Licensing Policy (HELP) regime under which the licensing for conventional and non-conventional hydrocarbons has been unified.
  • The Mines Act, 1952 (the Mines Act) and Oil Mines Regulations, 2017 detail provisions relating to health, safety and welfare of workers in oil mines. The provisions highlight the duties of owners, agents and managers and the penalties for contravention.
  • The Petroleum and Natural Gas (Safety in Offshore Operations) Rules, 2008 (the PNG Safety Rules) have been framed under the Oilfields Act and prescribe safety standards and measures to be taken for the safety of offshore petroleum operations. The PNG Safety Rules provide for: consents and intimation requirements in relation to the offshore installations; the manner of preparation of information and records; safety, health and environment measures, etc.
  • The Petroleum Act, 1934 and Petroleum Rules, 2002 governs primarily the midstream activities including the import, transportation and storage of petroleum. It provides for various licensing requirements in relation to import, transportation through various routes and storage of different classes of petroleum based on their flash points.
  • The Petroleum and Natural Gas Board Act, 2006 and rules made thereunder – PNGRB, which is the downstream oil and natural gas sector regulator, is established under the PNGRB Act; PNGRB has been authorised under PNGRB Act to make rules and lay down regulations for the downstream oil and natural gas sector. Pursuant to this, various rules have been formulated for authorising entities to lay, operate and maintain pipelines, city gas distribution networks, access code for pipelines, etc.

In addition to the above legislations, from time to time the Indian government promulgates policies, standards, directives and guidelines for governing various aspects of the upstream oil and gas sector (which include policies for the award of concessions for exploration of blocks and contractual structure to be followed). Further, there are several other state specific laws such as labour laws, land acquisition, right of way, etc, for which state laws will have to be complied with.

In the upstream sector, private investments are mainly undertaken through (i) grant of licence and lease by the Government of India to the private entity; and (ii) execution of contract with the Government of India for undertaking exploration and production activities. The companies obtain the right to exploration, development and production of petroleum pursuant to concessions and licence/lease granted to them by the Government of India.

Grant of concessions: upstream interests are given to private investors pursuant to the bidding process under the currently applicable HELP regime (the bid process is detailed in 2.2 Issuing Upstream Licences/Obtaining Petroleum Rights, below). Revenue Sharing Contracts (RSCs) are entered into between the successful bidders and the Government of India. Under the RSCs, there are only two monitoring parameters for the government – (i) revenue, and (ii) production. There is no cost recovery or micro-management by the Government of India. Further, there are reduced or graded royalty rates. The HELP regime was introduced in 2016 and award of blocks under three rounds have been completed to date. The RSCs have replaced the earlier model of production-sharing contracts (PSC).

Grant of licence/lease: the awardee/contractor is required to obtain a PEL for the entire contract area as per the provisions of the Oilfields Act and the PNG Rules. Under the terms of the licence, the licencee/contractor is granted an exclusive right over the operations relating to information drilling or test drilling for petroleum operations with the right to lease over such part of the licence area. Further, for carrying out development and production activities, the contractor is required to obtain a PML. Under the lease, the lessee has an exclusive right in the leased land to conduct mining operations for petroleum and has the right to undertake construction and maintenance in the leased area for full enjoyment of the lease or to fulfil the obligations under the lease. In relation to the surface rights, the Government of India has been empowered to grant PEL or PML in respect of any land vested in the Government of India or the offshore areas and the state governments have the power to grant PEL or PML over the lands vested with the state government with consent of federal government.

Typically, mining leases for offshore and onshore blocks are granted for 20 years.

Historic Forms of Contracts:

Upstream interests have been given to private investors under various licensing regimes. A brief overview of the licensing regimes has been provided below.

  • Nomination regime (until late-1970s): under this regime, PELs were granted to two national oil companies – OIL and ONGC – on a nomination basis.
  • Pre-NELP regime (1980-1995): under this regime, 28 exploration blocks were awarded to private companies wherein OIL and ONGC were given back-in rights to participate in the blocks after discovery. Further, under the Pre-NELP discovered field or development rounds, the small, medium-sized and discovered fields (which were proven reserves by ONGC and OIL) were granted to private investors. The Indian government has signed 28 contracts for 29 discovered fields under the regime.
  • NELP regime (1997-2010): this regime was introduced in 1997 and implemented from 1999. Acreages were awarded to companies, including private and foreign companies through an international competitive bidding process. A total of 254 contracts were awarded under nine licensing rounds of NELP.

Under the pre-NELP and NELP regime, production-sharing contracts (PSCs) were executed between the successful bidders and the Government of India. This was based on the ‘production-sharing model’, wherein up to 100% cost recovery was permitted. Also, the percentage of profit to be shared with the Government was a bidding criterion based on which the entity was selected. Under the currently applicable HELP regime, the RSCs have replaced the earlier model of PSCs. However, as per the Annual Report of DGH for the year 2017-18, 101 PSCs are still in effect and continue to be implemented in accordance with pre-NELP or NELP licensing regimes.

Under the currently applicable HELP regime, awards are being granted under the Open Acreage Licensing Policy (OALP) rounds. Under the OALP mechanism, prospective bidders have the option to carve out exploration blocks. As a first step, the investors are required to submit their suo moto 'expression of interest' (EOI) for blocks of their choice. The DGH provides a list of all data for the relevant blocks separately through the National Data Repository (NDR), on the basis of which the EOI for a block is made. The interested parties may file the EOI for a reconnaissance contract (for undertaking reconnaissance activities only), or petroleum operations contract/RSC on a revenue share basis (for undertaking exploration, development and production operations).

Pursuant to submission of the EOIs, the blocks are carved out and a 'notice inviting offer' (NIO) is issued by the Government. Bids submitted by interested bidders are then scrutinised on the basis of the qualifying criterions. The bidders are required to submit their operatorship experience, annual production, acreage holding and net worth, amongst other things. The minimum net worth is provided under the NIO for various kinds of blocks on offer, namely onshore, offshore shallow water, deep water, ultra-deep water and CBM. The net worth is calculated based on the latest completed financial year and is based on the sector size – for instance, net worth for one sector (10x10) is USD5 million for onshore, USD20 million for shallow water, USD60 million for deep water, USD90 million for ultra-deep water and USD2.5 million for CBM. 

The financial evaluation criteria are based on (i) the government share of revenue quoted by the bidder at the lower revenue point (LRP) and the higher revenue point (HRP) and (ii) the biddable work programme. Along with the bids, the bidders are also required to submit a bid participation bond. The value of the bid participation bond is based on the nature of the block (onshore, offshore shallow water, deep water, ultra-deep water or CBM). Pursuant to the scrutiny, blocks are awarded to the successful bidders and an RSC is executed between the Government of India and the successful bidder. The contractor is also required to procure PEL for conducting exploration activities in the awarded area. Subsequently, PML is required for the development and production phase.

The bid process under the HELP regime is different from the NELP regime as, under the NELP regime, the government determined the blocks that were put on offer.

Royalty Payments

Pursuant to the Oilfields Act, PNG Rules and the terms of the contract, the contractors are required to make royalty payments to the Government of India as a percentage of the value of petroleum receivable by the contractor. The presently applicable royalty rates are as follows:

  • crude oil:
    1. onshore – 12.5%;
    2. shallow water – 7.5%;
    3. deep water – no royalty for first seven years, and 5% after seven years;
    4. ultra-deep water – no royalty for first seven years, and 2% after seven years;
  • natural gas and CBM:
    1. onshore – 10%;
    2. shallow water – 7.5%;
    3. deep water – no royalty for first seven years, and 5% after seven years;
    4. ultra-deep water – no royalty for first seven years, and 2% after seven years.

Annual Licence Fee and Security Deposit

The licence holder is required to pay an annual licence fee for each square kilometre or part thereof covered under the licence. Further, a deposit of about USD5,800 is to be made by the PEL holders. The PML holders are required to deposit a sum of USD11,600 along with an amount not exceeding USD1,700 for meeting the preliminary expenses.

Revenue Share

The contractor is also required to provide revenue share to the Government of India (which as stated above is a bidding criteria). For the purpose of calculating the percentage of revenue payable to the GOI, the price will be the higher of either (i) the price arrived at on the basis of competitive bidding, and (ii) in case of oil, the price of an Indian basket of crude oil and sweet grade as calculated by the Petroleum Planning and Analysis Cell on a monthly basis, and in case of natural gas, the price as per the then existing gas pricing policy of the Government of India. The revenue share offered to the Government of India by the bidder will be considered for evaluation based on the lower revenue point (LRP) and the higher revenue point (HRP).

Under the previous NELP regime, the contractors shared profits with the Government after recovery of costs.

Under the Income Tax Act, 1961 (IT Act) the income or the profits of the companies is computed, subject to deductions prescribed, on the basis of the determined value and revenue realised on the sale of oil and gas as per the contract. Specific deductions in terms of contract are also allowed in lieu of or in addition to corresponding allowances under ‘profits and gains of business or profession’ in the IT Act. The deductions include expenditure incurred for exploration and drilling operations including infructuous or abortive exploration expense subject to prescribed conditions.

In relation to the Goods and Services Tax (GST), credits of input taxes are available in the subsequent stage of value addition, making GST a tax only on value addition at each stage. Crude oil, petrol, natural gas, fuel jet and diesel are currently excluded from the ambit of GST levy, whereas other oil products (such as liquefied petroleum gas, naphtha and kerosene) are included in the GST. As a result, upstream oil and gas companies will take advantage of input tax credit on GST paid only on the manufactured value-added products covered under GST.

Tax paid on inputs (purchase of machinery, crude oil, etc) is deducted from the tax on output for the final output product. Tax credits cannot be used for products excluded from GST as tax credit will not be transferred between the previous and new taxation system. This is on account of procurement of goods and services for upstream and downstream sector being in the ambit of GST and the majority output being outside the purview of GST. This implies that the majority of GST paid on goods and services by oil and gas companies is a cost to them in addition to the cost of compliance under both the old and new tax regimes. This results in the end consumer bearing the burden for the increase in cost of such products.

Presently, the oil and gas companies are to deal with the parallel system of taxation. While they incur GST charges on services and charges used for operations, they cannot offset this against VAT (value added tax) and excise duty on output such as crude oil, diesel, etc, resulting in stranded taxes.

The Indian oil and gas taxation regime is quite diverse and is subject to change – accordingly, it is advisable to obtain tax advice from a specialist while considering investment in the Indian oil and gas sector.

Under the currently applicable HELP Regime, no special rights are given to national oil companies. However, under the nomination regime (prior to 1980), licences were granted to national oil companies – ONGC and OIL – on a nomination basis. Further, under the pre-NELP rounds, 28 exploration blocks were awarded to private companies whereby OIL and ONGC were given the back-in rights which allowed ONGC and OIL to participate in the blocks after discovery.

In relation to local content requirements, the model RSC provides that the contractor shall, to the maximum extent possible, employ and further require the operator and its subcontractors to employ Indian citizens having appropriate qualifications and experience. Additionally, preference is to be given to the purchase and use of goods (equipment, materials and supplies) that are manufactured, produced or supplied in India subject to their timing of delivery, quality and quantity required, price and other terms.

The typical terms under the RSC require the licence holder/contractor to undertake the following.

  • Notification to the management committee (MC): when a discovery is made, the contractor is required to notify about the discovery to the MC (constituted by the representatives of the Government and the contractors). The contractor is required to run tests to determine if the discovery is of commercial interest and merits appraisal. Such information of potential commercial interest is further required to be submitted to the MC (PCI Notice).
  • Appraisal programme: subsequent to the notice, an appraisal programme is to be submitted to the MC with demarcation of the development area.
  • Field development plan (FDP): pursuant to the appraisal, the contractor is required to notify its intent to the MC if it intends to submit an FDP. The contractor also has the option to submit the FDP along with the PCI Notice. Where FDP is to be submitted, the contractor shall formulate the FDP. As per the model RSCs, the FDP should contain: a detailed technical assessment report for commercial development of the field; a work plan for commercial development of the field and estimated costs and budgets for commercial production from the field. The contractor is required to commence development operations pursuant to the FDP commitments.

The above-mentioned procedure is similar to the PSC regime.

In addition to the contract terms mentioned above, the other key terms of the contracts include the following.

Exploration Periods and Lease term

The NIOs and Model RSCs issued for each round under the licensing regime note the exploration period. Pursuant to the terms of the Model RSC issued for Round III of the OALP, the initial exploration phase is three years for all onshore, shallow water, deep water, ultra-deep water and specified basins, with provision of one extension of one year for onshore and shallow water and provision of two extensions of one year for deep water, ultra-deep water and specified basins. The subsequent exploration phase is of a maximum of three years for all onshore, shallow water, deep water, ultra-deep water and specified basin with provision of one extension of one year for onshore and shallow water and provision of two extensions of one year for deep water, ultra-deep water and specified basin. The lease is granted for a period of 20 years excluding the exploration period.

Minimum Work Programmes

The work programmes are set out in the bids submitted by the contractors which subsequently form part of the contracts. Further, the contractor have the right to formulate additional work programmes in the exploration phase. In case of failure to fulfil the work programmes, the contractor is required to pay liquidated damages.

Relinquishment

The contractor has the option to relinquish the entire contract area or to retain the discovery/development areas and relinquish the other parts of the contract area, 90 days prior to expiry of the initial exploration phase and the subsequent exploration phase. Upon relinquishment, the contractor is required to remove all equipment and installation from the relinquishment area, and perform site restoration activities.

Domestic Supply Requirements and Export Rights

The Model RSC includes a provision whereby there is an obligation on the contractor to sell crude oil/condensate/natural gas from petroleum production in the domestic market until India attains self-sufficiency.

Termination

The model RSC also provides for termination events which includes a contractor being adjudged as bankrupt, unauthorised extraction, submission of false statements by the contractor and assignment of participating interest without obtaining written consent of the Government of India.

As per the PNG Rules, the holder of a PEL or PML may assign its rights subject to the prior written approval of the Government that has granted the licence or lease.

Further, as per the provisions of the contracts (PSC/RSCs), the contractor is required to seek prior approval of the Government of India for:

  • assignment of participating interest in the block;
  • mortgage of participating interest;
  • change in control of the member, or its parent company; or
  • change in relationship of the contractor with the companies providing guarantee (which is typically the parent company).

Change of shareholding at the parent company level of the contractor may also require the participating interest holder to comply with the requirements of the assignment provision of the RSC.

For effectuation of the assignment, the contractor is required to make an application to the Government, whereby the Government is to be satisfied that:

  • the transferee has the capacity and ability to meet the obligations under the contract;
  • the transferee is willing to provide an unconditional undertaking to the Government for assuming the obligations of the transferor and provide guarantees;
  • the transferee is not a company incorporated in a country with which the Government has restricted trade or business for policy reasons;
  • the transferee is willing to comply with any reasonable conditions of the Government, as may be necessary for ensuring the performance of obligations under the contract; and
  • the transfer will not adversely affect the performance of the contract or be contrary to the interests of India.

The Government is required to respond to the application within a prescribed number of days from the receipt of such request failing which the approval shall be deemed to have been given by the Government. Assignment is not permitted where the participating interest to be retained by the transferor is less than 10%.

Upon assignment, the transferor would be released from its obligations only to the extent of his obligations being assumed by the assignee with the approval of the Government.

Transfer of Operatorship

Where the contractor is a consortium of different members, one of the members is operator for the purposes of carrying out the petroleum operations. For change in the operatorship, prior written consent of the Government is required. For this purpose, the contractor is required to submit an application. The Government may accept or reject the application within the term prescribed under the contract. The Government shall ensure that the new operator meets the criteria as qualified by the existing operator.

The price at which petroleum produced is to be sold has been different under various licensing regimes. Under the currently applicable HELP regime, pricing freedom has been given for sale of crude oil and natural gas in the domestic market on an arm’s-length sales basis.

Under the NELP regime, price of crude oil was determined on import parity basis. The price/rate at which the natural gas produced is to be sold has undergone various changes over various regimes. However, the pricing under the previous regime is important as blocks awarded under the previous regimes remain to be governed by the then applicable pricing formulae.

A brief of the natural gas pricing regime (with regulatory restrictions, where applicable) is as follows.

Prior to November 2014, the natural gas pricing regime was broadly divided under two heads: (i) administered pricing mechanism (APM); and (ii) non-administered pricing mechanism (non-APM). The APM regime covered the natural gas sold by state-owned oil and gas companies, from such blocks which were given to them under nomination. Under the APM mechanism, the Indian Government determined the price at which gas was to be sold by the contractors. The non-APM regime covered the price of gas produced from the pre-NELP blocks, NELP blocks and new discoveries of national oil companies. Under the non-APM regime, typically, the price of gas was to be determined based on the provisions of the PSC.

However, in October 2014, to bring about uniformity in the pricing regime, the MOPNG notified the New Domestic Natural Gas Pricing Guidelines, 2014 (the Gas Pricing Guidelines), which took effect from 1 November 2014. The Gas Pricing Guidelines prescribe a formula for determining the well head price of gas produced which considers the annual average of daily prices at Henry Hub (HH) and the National Balancing Point (NBP), and the annual average of monthly prices at Alberta Hub and Russia. The price is notified on a half-yearly basis by the Petroleum Planning and Analysis Cell (PPAC). The price determined in accordance with the Gas Pricing Guidelines is applicable to all gas production including gas from nomination blocks, pre-NELP blocks, NELP blocks and CBM blocks, except in specified circumstances.

Further, in March 2016, the Indian government notified the ‘Marketing including pricing freedom for the gas to be produced from discoveries in deep water, ultra-deep water and high-pressure-high-temperature areas guidelines’, allowing pricing freedom for all discoveries in these areas, which were yet to commence production as of 1 January 2016. Pursuant to these guidelines, the parties could sell gas at a price up to the ceiling price notified by PPAC on a half-yearly basis. Recently, pursuant to a resolution dated 28 February 2019, marketing and pricing freedom would be permitted to new gas discoveries (in case of existing contracts), where FDP will be approved for the first time after 28 February 2019.

Up to 100% foreign direct investment under the automatic route is permissible for midstream and downstream sector activities, except for petroleum refining by the Public Sector Undertaking (PSU) where 49% foreign direct investment is permitted (see section 4 Foreign Investment, below).

At present, the majority of the pipelines are owned by national oil companies (mainly GAIL) and these companies also have large shares in the retail marketing and distribution segments.

The right to participate in various midstream and downstream operations is permissible pursuant to the authorisations/licences granted pursuant to the provisions of the Petroleum Act, 1934, the Petroleum Rules, 2002, the PNGRB Act, 2006 and the regulations made thereunder. Pursuant to the provisions of the Petroleum Act, 1934 and the Petroleum Rules, 2002, licences are granted for import, transportation and storage of petroleum on the basis of the quantities of different classes of petroleum (categorised on the basis of flash points). Further, investors are required to procure approvals for refinery (for refining, cracking, reforming and blending petroleum). The licence is granted by the Chief Controller of Explosives, PESO, pursuant to the provisions of the Petroleum Rules, 2002.

Additionally, for other downstream activities, authorisations for laying, building, operating or expanding city gas distribution (CGD) network and pipeline networks, are granted by PNGRB. Ten rounds of CGD bidding have so far been completed and PNGRB has granted authorisation for 228 geographical areas.

In relation to monopoly in the downstream operations, at present, GAIL is the authorised entity for 11,411 km out of the total length of 16,324 km of the natural gas pipelines in India. Further, GAIL has a large share in distribution and marketing of petroleum. In August 2018, the MOPNG launched an online portal for booking of transmission services under GAIL’s pipelines, whereby third parties can apply for capacity booking for the available excess capacity for transportation of natural gas through the common carrier or contract carrier pipelines.

Further, pursuant to the provisions of the PNGRB ('Authorising entities to lay, build, operate or expand natural gas pipelines') Regulations, 2008 (NG Pipelines Regulations), the authorised entities shall allow inter-connectivity to another natural gas pipeline as per the provisions of the Petroleum and Natural Gas Regulatory Board ('Access code for common carrier or contract carrier natural gas pipelines') Regulations, 2008 (Access Code). Customers/third parties or shippers can book capacities by entering into a contract with the authorised entity for the natural gas pipelines. The tariff for pipelines authorised under the NG Pipelines Regulations is fixed for each tariff zone by the PNGRB, as per the bid submitted by an entity.

Licensing/authorisations are required for various downstream operations. The processes of issuance of key licences are detailed below:

Licence to Import, Store and Transport Petroleum

An entity wishing to obtain a licence is required to submit an application to the prescribed authority at PESO. Forms and other requirements vary depending on the various types of licences provided under the Petroleum Rules, 2002. However, except in case of certain licences, the applicant is required to submit a no objection certificate from the district authority for the proposed location.

Approvals for Refinery

As per the Petroleum Act, 1934 and Petroleum Rules, 2002, approval from the Chief Controller of Explosives, PESO, is required for refining, cracking, reforming and blending petroleum. For this, an application is to be submitted to the Chief Controller of Explosives along with a copy of a project report, specifications, plans, and scrutiny fees.

Registration for Terminals

Pursuant to the terms of the PNGRB Act, 2006, an entity wishing to establish an LNG terminal or storage facilities for natural gas that exceeds the storage capacities prescribed by regulations would require prior registration, in the manner prescribed by the PNGRB. In this regard, the PNGRB has also issued draft regulations in relation to registration for establishing and operating LNG terminals and registration of storage facilities.

Authorisation for City Gas Distribution (CGD) Network, Common Carrier or Contract Carrier Pipelines

As per the PNGRB ('Authorising entities to lay, build, operate or expand city or local natural gas distribution networks') Regulations, 2008 (the CGD Authorisation Regulations) and the NG Pipeline Regulations, entities are granted authorisation for laying, setting up or expanding a natural gas pipeline and laying, building, operating or expanding a city gas distribution network. The entities may either submit expression of interest or PNGRB may suo moto initiate the bid process for grant of authorisations. The entities are required to pay an application fee along with the application-cum-bid, as specified under the Petroleum and Natural Gas Regulatory Board ('Levy of fee and other charges') Regulations, 2007. Further, the entities are required to meet the technical qualifications as detailed under the CGD Authorisation Regulations and NG Pipeline Regulations. For instance, in relation to CGD, the qualifying criteria includes: experience in laying and building of hydrocarbon steel pipeline of a length not less than 300 km on a cumulative basis or a CGD network; adequacy in number of technically qualified personnel with experience in construction; pre-commissioning and commissioning of hydrocarbon steel pipeline; and also having a credible plan to independently undertake and execute the CGD project on a standalone basis and having technical capability to operate and maintain the CGD network.

Authorisation for Marketing of Fuels

As per the resolution issued by the Government in 2002, the grant of authorisation to market transportation fuels – namely, motor spirit, high-speed diesel and aviation turbine fuel – to the new entrants, including the private sector, may be granted subject to the prescribed conditions. These conditions include that the entity must own or operate with an investment of at least USD290 million (approximately) or be an oil exploration and production company producing at least 3 million tonnes of crude oil annually, or a company investing or proposing to invest USD290 million (approximately), in exploration and production, refining, pipelines or terminals.

Please note that in addition to the aforementioned sectoral approvals, there are plethora of federal and state government approvals required under applicable laws to undertake the aforementioned business activities.

Licence fee – the licences mentioned above in 3.3 Issuing Downstream Licences, are granted or renewed for a prescribed fee.

Tariff determination – pursuant to the PNGRB Act and regulations made thereunder, the PNGRB has issued regulations with respect to determination of tariffs for various downstream activities. However, only certain components are regulated, and the end-to-end pricing of natural gas or petroleum products is not regulated. The regulated components include tariff for natural gas pipelines and petroleum and petroleum products' pipeline transportation. The existing tariff determination calculations have been briefly provided below:

  • the natural gas pipeline (common carrier/contract carrier) tariff is determined by PNGRB considering a reasonable rate of return on a normative level of capital employed plus a normative level of operating expenses in the natural gas pipeline;
  • the petroleum and petroleum products pipeline transportation tariff is determined by benchmarking against the goods tariff table of railways.

For city gas distribution networks, the transportation rate is a biddable criterion.

The retail price of major petroleum products (ie, petrol and diesel) is decided based on international prices, which are revised on a daily basis.

The general tax regime is applicable for downstream operations in the Indian petroleum sector. The direct tax regime in India is governed by the IT Act as noted above in 2.4 Income or Profits Tax Regime Applicable. The net income from downstream operations is taxed in accordance with the IT Act.

It is advisable that investors obtain specialist tax advice in relation to the taxation regime as applicable to the sector.

Similar to the upstream sector, there are no special rights for national oil or gas companies in India in connection with downstream licences. However, only 49% foreign direct investment is permitted under the automatic route for petroleum refining by the public sector undertaking without any disinvestment or dilution of the domestic equity of the existing public sector undertakings.

There are no local content requirements applicable to downstream operations by private investors in India. However, a joint venture that has 51% or more equity by one or more public sector undertaking under the MOPNG would be subject to the policy to provide purchase preference (linked with local content). The policy, amongst other things, prescribes local requirements for service contracts, supply contracts and EPC contracts in relation to midstream and downstream sectors.

The licences/authorisations are subject to the terms prescribed in the relevant legislation under which such licences are issued, including the Petroleum Act, 1934, the Petroleum Rules, 2002 and the PNGRB Act and rules and regulations made thereunder. Additionally, terms and conditions are also mentioned under the various licences issued by the authorities. Typically, this includes conditions in relation to use, safety standards, cancellation, etc.

Various service obligations for authorised entities for city gas distribution networks have been provided under the PNGRB regulations. These obligations also form part of the copy of authorisation granted to the authorised entities.

Article 300-A, read with Article 31 (as inserted by the 44th Constitution (Amendment) Act, 1978) of the Indian Constitution, provides for acquisition of property (expropriation) upon enactment of a valid law, for a public purpose and upon payment of compensation. Under various judgments of the Supreme Court, the Court has held that such compensation has to be fair and adequate. The right is available only with the central or the state Government and certain statutory entities.

In general, there are two ways of acquiring land: (i) through bilateral negotiations with landowners; and (ii) through statutory land acquisition process provided under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and rules framed thereby. The statutory process prescribed under the Land Acquisition laws requires, amongst other things, conducting a social impact assessment study, obtaining the consent of a minimum number of the families affected by acquisition of the relevant land (ie, 70% in case of a public private partnership project, or 80% in case of other projects), and rehabilitating the affected families. Further, the district collector determines the compensation payable in accordance with the Land Acquisition laws, which is paid by the project proponent to the owner.

For pipeline infrastructure, third parties have access to common carrier and contract carrier pipelines as determined by PNGRB. The PNGRB ('Guiding principles for declaring or authorising natural gas pipeline as common carrier or contract carrier), Regulations, 2009 (the Open Access Regulations) provides for declaration of natural gas pipelines as common carrier (pipelines for transportation of gas by more than one entity on a non-discriminatory open access basis, as authorised or declared by PNGRB) or contract carrier (pipelines for transportation of petroleum, petroleum products and natural gas by more than one entity pursuant to firm contracts for at least one year as may be declared or authorised by the PNGRB from time to time) with the objective of promoting competition and also for the development of competitive markets.

The Open Access Regulations provide for a ‘contract carrier system’ and a ‘common carrier system’ for availability of excess capacity for transportation of natural gas through the pipelines. For city gas distribution networks, the companies have a network exclusivity for eight years. Further, for use of the pipeline networks, the third parties would have to enter into access arrangements/contracts with the authorised entities.

Pursuant to the terms of the authorisation granted for the marketing of transportation fuels, the Government may impose certain conditions on the company which may include providing services to remote areas and low service areas. Further, the authorisation for marketing of fuels and the authorisation in relation to city gas distribution networks are subject to certain service obligations.

For instance, in relation to marketing of fuels, service obligations include setting up of retail outlets in remote areas, maintaining minimum inventory levels of petroleum products etc; and in relation to city gas distribution, service obligations include taking of an interest-free refundable security deposit from domestic piped natural gas customer towards security of installed equipment and facilities, and non-exertion of any undue influence on any domestic piped natural gas customer to avail any service which is not connected with the supply of natural gas.

As per the terms of the contracts (PSCs/RSCs), export of crude oil and natural gas is not permissible until India attains self-sufficiency. In that regard, India is currently a net importer of crude oil and natural gas and, therefore, exports cannot be undertaken by the companies. However, export of petroleum products is permissible. The export of petroleum products is regulated by the Foreign Trade Policy 2015-2020 under which an exporter will have to obtain an Importer Exporter Code (IEC).

In terms of the NG Pipelines Regulations, the grant of authorisation shall not be transferred during the period of three years from the date of its issue or until the achievement of the work programme, whichever is earlier. Further, the lead partner of an authorised entity is required to hold at least 50% of the shareholding of the authorised entity for a period of three years from the date of issuance of the authorisation.

Similarly, under the CGD Authorisation Regulations, the grant of authorisation shall not be transferred during the period of five years from the date of its issue or until the achievement of the work programme, whichever is earlier. The lead partner of an authorised entity is required to hold at least 50% of the shareholding of the authorised entity for a period of five years from the date of authorisation or until the achievement of the work programme, whichever is earlier.

In terms of licences issued under the Petroleum Rules 2002, the provisions allow the holder of a licence for storage to transfer the licence to another person prior to the expiry of such licence. For such transfer, application is required to be made to the licensing authority.

The provisions of the Foreign Exchange Management Act, 1999 and the regulations framed thereunder are applicable for all foreign investments in the petroleum sector. Foreign investment in the sector is permitted under the automatic route (ie, where the prior approval of the Reserve Bank of India or the Government is not required) under the provisions of Foreign Exchange Management ('Transfer or issue of security by a person resident outside India') Regulations, 2017 (FEMA 20).

FEMA 20 lays down the following sectoral caps for activities in the petroleum and natural gas sector:

  • up to 100% under the automatic route for:
    1. exploration activities of oil and natural gas fields,
    2. infrastructure related to marketing of petroleum products and natural gas, petroleum product pipelines, natural gas/pipelines,
    3. LNG regasification infrastructure,
    4. market study and formulation, and
    5. petroleum refining in the private sector (which shall be subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies);
  • up to 49% under the automatic route for petroleum refining by public sector undertakings without any disinvestment or dilution of domestic equity in the existing public sector undertakings.

Although 100% FDI is permitted under the FDI as per the provisions of Indian foreign exchange laws, certain restrictions can be placed on the category of transactions, being current account transactions and capital account transactions. Current account transaction are permissible unless specifically restricted by the Indian government and all capital account transactions are prohibited unless specifically permitted by the Indian government.

Availability of International Arbitration

For the upstream sector, as noted above, RSCs are entered into with the Government of India. Under the model RSC, the courts of Delhi have jurisdiction, and the seat and place of arbitration proceedings is at New Delhi. The model RSCs are standard form agreements and are not typically open for negotiations. Therefore, international arbitration may not be possible under the RSCs.

For midstream and downstream activities, typically, bilateral contracts are entered into between parties. Customarily, these contracts are governed by Indian law and are seated in India. In cases where one of the parties to the contract is from a foreign jurisdiction, the parties may choose to designate a foreign seat of arbitration. However, a foreign-seated arbitration would not exempt the parties from compliance with Indian laws.

The key environmental legislations governing upstream and downstream operations are briefly stated below.

Environment (Protection) Act, 1986 (EPA)

The objective of the EPA is protection and improvement of environment and prevention of hazards to human beings. Pursuant to the provisions of the EPA the Central Government lays down the standards on emission, discharge of environmental pollutants and standards to be maintained by industries in order to protect the environment. Pursuant to the EPA, the notification dated 14 September 2006 has been issued by the Ministry of Environment and Forests and Climate Change (MoEF) (EIA Notification) whereby prior environmental clearance is required for all projects and activities scheduled therein, which also includes various petroleum sector activities.

Water (Prevention and Control of Pollution) Act, 1974 (Water Act) and Air (Prevention and Control of Pollution) Act, 1981 (Air Act)

These legislations seek to prevent water pollution and air pollution. Pursuant to the provisions of these legislations, the companies are required to obtain ‘consent to establish’ and ‘consent to operate’ from the Central Pollution Control Board (CPCB) and the State Pollution Control Boards (SPCBs) as prescribed.

Hazardous and Other Waste (Management and Trans-boundary Movement) Rules, 2016 (Hazardous Waste Rules)

These rules seek to govern the management, import, export, treatment, storage and disposal of hazardous waste. Under these rules, authorisation from the SPCBs is required for generating, treating, processing, packaging, storing and transporting waste (generated from drilling).

Forest (Conservation) Act, 1980 (FCA)

The FCA aims at forest conservation in India. The FCA restricts the use of forest land for non-forest purposes and prescribes for approval requirements for use of forest land.

Coastal Regulation Zone Notification 2011 (CRZ Notification)

As per the CRZ Notification, exploration and extraction of oil and natural gas in the coastal zone requires permission from the MoEF.

National Oil Spill Disaster Contingency Plan

The Plan has been issued by the Ministry of Defence, Government of India to facilitate national preparedness and response for incidents involving hazardous and noxious substances.

The regulatory bodies that primarily regulate the sector in relation to environmental laws are the MoEF which is the nodal ministry for environment (http://envfor.nic.in/), the DGH (http://www.dghindia.gov.in/), the CPCB (http://cpcb.nic.in/) and the various SPCBs.

Under the EIA Notification (noted in 5.1 Principal Environmental Laws and Environmental Regulator(s), above), various petroleum sector activities require prior environment clearance. The process for grant of environment clearance involves various stages, as detailed below.

  • An environmental impact assessment (EIA) is conducted which involves screening, scoping, public consultation and appraisal.
  • The screening stage is applicable only for certain projects (ie, Category B of the Schedule to the EIA Notification). At this stage (if applicable), the application for obtaining an environmental clearance is scrutinised by a State level Expert Appraisal Committee (SEAC) for determining whether or not the project or activity requires further environmental studies for preparation of an EIA.
  • At the scoping stage, the Expert Appraisal Committee (EAC) or SEAC (as applicable) determines terms of reference (based on the standard terms of reference developed by the MoEF) which addresses all relevant environmental concerns for preparation of the EIA report.
  • The public consultation stage ordinarily comprises of a public hearing at the site or in close proximity to it, to ascertain the concerns of local affected persons and obtain responses in writing from other concerned persons with a plausible stake in the environmental aspects of the project or activity. After completion of the public consultation, the applicant is required to address all material environmental concerns expressed during this consultation process and make appropriate changes to the draft EIA and environmental management plan. The final EIA report is submitted by the applicant for appraisal.
  • Appraisal covers detailed scrutiny by the EAC/SEAC of the application and other documents like the final EIA report. The appraisal is done transparently, and the applicant is invited to furnish any necessary clarifications. On conclusion of this proceeding, the EAC makes categorical recommendations either to grant prior environmental clearance on stipulated terms and conditions, or to reject the application for prior environmental clearance, together with reasons. Appraisal of an application must be completed by the EAC within 60 days of receipt of the final EIA report.

Environment health and safety requirements for offshore development are covered under the Petroleum and Natural Gas (Safety in Offshore Operations) Rules, 2008 (Offshore Safety Rules) which have been formulated under the provisions of the Oilfields Act. The Offshore Safety Rules apply to the licencee/lessor/operator who has been issued such licence or lease for operating an offshore field.

The provisions of Offshore Safety Rules inter alia regulate any operation of new or existing offshore installations, risk and safety management, health and welfare measures, emergency response, facilities design, drilling and maintenance and various operational prerequisites involved in offshore operations, and lay down the consent requirements for the licencee/lessor for engaging in such offshore operations.

Pursuant to the provisions of the Offshore Safety Rules, the operator is required to maintain information in relation to: permanent plugging of wells; facilities and waste temporarily left on the sea bed; accidental pollution incidents and actions taken thereof; environment monitoring; discharge of oil and chemicals; situations of hazard and accident; and safety statistics, incident investigation reports and analysis. The rules also prescribe for approval and intimation requirements including design intimation for fixed offshore installation and applications for consent for operation of new fixed, existing and mobile offshore installations.

Liability Exposure and Limitation

In addition to the liability undertaken or incurred under the RSC, a contractor can also be made liable for claims arising out of negligence, misconduct, act or omission, etc, in the conduct of its operations or for violation of applicable laws.

Further, the Oilfield Act provides for imprisonment for up to six months or a fine (as prescribed) or both, for the contravention of the provisions of the rules made thereunder which includes the Offshore Safety Rules.

Security Requirements

Certain bank guarantees from the contractor and performance guarantee from the parent company of the contractor or contractor are required to be submitted by the contractor/bidder in favour of the government under the RSCs.

In relation to decommissioning, the PNG Rules provide that on termination of the PEL/PML, the land and any wells contained in it must be delivered in good order and condition. The former licencee or lessee can, within six months after the licence or lease ends, remove or dispose of any petroleum recovered during the currency of the licence or lease period, along with stores, equipment, tools and machinery and any improvements on the land covered by the licence or lease that the state government may permit. The stores, petroleum, equipment, tools, machinery and other improvements to land that are not removed or disposed of can be sold at auction by the government.

Further, as per the terms of the RSCs, the contractors are required to remove all equipment and installations from the contract area in a manner as agreed with the Indian government as per an abandonment plan submitted by the contractor. The contractor is required to prepare and submit a proposal to the MC for site restoration including abandonment plan, requirement of funds for site restoration and annual contribution. The contractor is also required to perform all requisite site restoration activities as under any specific guidelines, rules or regulations that have been formulated by the Government in relation to site restoration. In this regard, the site restoration and abandonment guidelines for petroleum operations have been issued by the Government. The guidelines provide for obligations regarding decommissioning of offshore and onshore production sites.

In addition to the above, the Offshore Safety Rules also requires the lessee/lessor to submit a decommissioning plan to OISD.

Pursuant to the Paris Agreement, India has undertaken various obligations under the Intended National Determined Contributions (INDC) submitted by it. The INDC includes reduction in the emissions intensity of its GDP by 33%  to 35% by 2030 from its 2005 level. To abide by its commitments, the Government of India has formulated various plans, programmes and schemes such as the National Action Plan on Climate Change, Green India Mission, FAME-India (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India), etc. A focus on renewable resources and increased adoption of electric vehicles is likely to impact the use of crude oil and petroleum products. However, in line with the INDC, the Government has also been focussing on increasing the percentage share of natural gas in India’s energy mix.

Further, in relation to pollution control, the EPA – read with the Environment (Protection) Rules, 1986 – prescribe the limits for effluents from various industries including oil refineries. Further, the consents issued under the Air Act and Water Act also provide for permissible limits of pollutants for activities to be undertaken under such consents.

The regulation and development of petroleum resources is a subject falling under the legislative competence of the federal government under the Constitution of India. Therefore, the power of local governments to restrict oil and gas development is limited to certain local permit requirements, local land use regulations, etc.

Prior to the introduction of the HELP regime, the licensing regime for non-conventional hydrocarbons such as shale gas, coal bed methane, tight gas, gas hydrates, etc, was different from that of conventional hydrocarbons such as crude oil and natural gas. For unconventional resources, separate policies were formulated by the Government such as the CBM policy of 1997 and the policy dated 14 October 2013 granting permission for shale gas and oil exploration and exploitation to national oil companies, for blocks awarded to these companies on nomination basis. Unlike the erstwhile regimes, which required companies to obtain separate contracts for unconventional oil and gas, the HELP regime unifies the authority to grant licences for the exploration and production of conventional and unconventional oil and gas resources – including shale gas, coal bed methane, oil, and gas – under a single contract.

Further, in 2018, the Government of India approved the policy to permit exploration and exploitation of unconventional hydrocarbons, such as shale oil and gas and CBM, under the existing PSCs, CBM contracts and nomination fields.

The PNGRB Act mandates that every entity that wants to establish or operate a liquefied natural gas terminal is required to fulfil the eligibility conditions prescribed by the PNGRB (if any) and obtain registration with the PNGRB. The eligibility criteria for obtaining registration has been prescribed under the PNGRB (Eligibility Conditions for Registration of Liquefied Natural Gas Terminal) Rules, 2012 that include availability of 20% uncommitted regasification quantity or 0.5 MMTPA (whichever is higher) at all times as common carrier capacity, adherence to prescribed technical standard, and furnishing of a bank guarantee. Additionally, a draft of the PNGRB (Registration for establishing and operating liquefied natural gas (LNG) terminals) Regulations, 2018 has been issued by the PNGRB.

Further, 100% foreign direct investment is permissible for establishment of LNG terminals.

To enhance domestic production and investments, the Government of India has undertaken various policy reforms in recent years including the HELP regime (which includes uniform licensing for all hydrocarbons, open acreage licensing, revenue share model and marketing and pricing freedom), the policy framework for streamlining the operations of PSCs (which, inter alia, provides for special dispensation for difficult areas, extension of tax benefits to pre-NELP blocks and sharing of royalty and cess between contractors in proportion to their participating interests in the pre-NELP exploration blocks).

Further, pursuant to its commitments under INDC, the federal government is taking steps to enhance the percentage of natural gas in the energy mix. The government has also proposed to create a natural gas trading hub and thereby create an Indian gas benchmark. The federal government is also largely focusing on development of pipeline infrastructure and CGD networks.

Pursuant to the introduction of the HELP regime and three licensing rounds being conducted under the OALP, the Government on 28 February 2019 passed a resolution providing a series of policy reforms to incentivise production, streamline and expedite the approval process, and promote ease of doing business.

For the purposes of the policy, sedimentary basins have been categorised as category I (which have proven hydrocarbon resources with established commercial production), category II (which have contingent resources yet be converted to recoverable reserves and commercial production), and category III (which have prospective resources with no hydrocarbon discovery and few exploration inputs and data).

These reforms include:

  • enhancement of weightage to Minimum Work Programme (MWP) for evaluation of bids for Category I basins;
  • revenue sharing ceiling to be set at 50% for category I basins;
  • reduction in the timeline for completion of committed MWP for category I basins;
  • for category II basins and category III basins, exploration blocks to be awarded based exclusively on exploration work programme;
  • no production and revenue sharing but only statutory levies to be applicable except in case of windfall gain for category II and category III basins; and
  • grant of concessional royalty in case of commencement of production within four years for onshore and shallow water blocks, and within five years for deep water and ultra-deep water blocks.

The above-mentioned policy changes are to be applicable from the fourth round under OALP.

Further, as per the policy, in case of existing contracts, marketing and pricing freedom will be permitted to new gas discoveries whose FDP will be approved after the issuance of the policy. For nomination regime contracts, pricing and marketing freedom would be provided subject to the approval of FDP by DGH.

J. Sagar Associates (JSA)

Sandstone Crest
Opposite Park Plaza Hotel
Sushant Lok
Ph 1, Gurugram 122 009
India

+91 124 439 0775

meenakshi.mukker@jsalaw.com www.jsalaw.com
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Law and Practice

Authors



J. Sagar Associates (JSA) is a leading national law firm in India comprising over 300 lawyers and consultants, including partners, with offices in Ahmedabad, Bengaluru, Chennai, Gurgaon, Hyderabad, Mumbai, GIFT City and New Delhi. JSA has significant experience in handling diverse assignments in the oil and gas sector. JSA's oil and gas practice, which includes advising and assisting various stakeholders in the hydrocarbon value chain, is handled by a team having significant domain expertise. It includes advising on a wide range of transactions and advisory mandates involving constitutional, legal, regulatory, contractual, and policy-related issues. JSA regularly advises clients on drafting and negotiating contracts relating to upstream, midstream and downstream activities, such as supply contracts, gas/petroleum products transportation contracts, production sharing/revenue sharing contracts, joint operating agreements, LNG sale and purchase agreements, gas sale and purchase agreements, gas tolling agreements, port concession agreements, shipping agreements (time charter/voyage charter, etc), offtake agreements, EPC contracts and related agreements.

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