policy implications nelp
TRANSCRIPT
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NELPNELP--VIIVII
POLICY IMPLICATIONS, FISCALPOLICY IMPLICATIONS, FISCALTERMS & BID EVALUATIONTERMS & BID EVALUATION
BYBYU. S. SHARMA, ORFU. S. SHARMA, ORF
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CONTENTSCONTENTS
POLICY,REGULATORY AND LEGALPOLICY,REGULATORY AND LEGALFRAMEWORKFRAMEWORK
FISCAL TERMSFISCAL TERMS BID EVALUATIONBID EVALUATION
CONCLUSIONSCONCLUSIONS
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LEGISLATIVE,POLICY ANDREGULATORY FRAMEWORK
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Legislative framework for E & P activitiesLegislative framework for E & P activities Constitution of India provides ownership of petroleum resources
in offshore with the Union of India 9 Article 297)
Ownership of petroleum resources in onland areas rests with
respective state governments
However regulation and development of petroleum resourcesboth in offshore & onland areas exclusively rests with the union
government ( Schedule 7, entry 53 of the Constitution of India)
The Oil Field (Regulation & Development ) Act, 1948 (ORDA)provides power to the Union Government, inter-alia, for grant of
leases and licences, conservation and development of
petroleum, collection of royalty on petroleum etc.
Petroleum & Natural Gas (PNG) Rules, 1959 provides rules forcarrying out the provisions of the ORDA
PSCs are in nature of additional terms and conditions to PELs
and PMLs granted under P & NG Rules, 1959contd..
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Legislative framework for E & P activitiesLegislative framework for E & P activities Onshore Exploration Licenses/Mining Leases granted by StateOnshore Exploration Licenses/Mining Leases granted by State
Governments with prior approval of Government of IndiaGovernments with prior approval of Government of India
Offshore Exploration Licenses/Mining Leases granted directlyOffshore Exploration Licenses/Mining Leases granted directly
by Government of Indiaby Government of India
Environment Protection Act, 1986Environment Protection Act, 1986 Arbitration and Conciliation Act, 1996Arbitration and Conciliation Act, 1996
Income Tax Act, 1961Income Tax Act, 1961
Customs Act, 1962 Oil Industry Development Act, 1974
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Policy framework for NELPPolicy framework for NELP NELP approved by the Union Government in February,1997
The NELP including its main fiscal and contract terms was laid
in both the Houses of the Parliament in March,1997
The NELP was publicly notified through a gazette notification in
February,1999
NELP provide award of acreages through International
Competitive Bidding ( ICB) route
NOCs and private companies required to compete for acreagesand provided same terms and conditions
NELP provides upto 100% interest by a foreign company/ a
consortium of foreign companies through PSC regime
No prior requirement for registration/incorporation in India for the
purpose participating under NELP process
NELP terms & conditions do have consents of the state
governments
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Regulatory Framework for E & PRegulatory Framework for E & P Regulation of E & P activities mainly through ORDA, P &
NG Rules, PELs and PMLs granted and PSCs signed.
The Government with the assistance from DGH regulates
the E & P activities
MCs under PSCs have been empowered to take several
decisions on exploration, development and production of
oil and gas
There is no comprehensive regulation document
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Approval ProcessesApproval Processes Bids to be received in DGH office on 25 April,2008
These are opened in public before the authorised
representatives of bidding companies
Bids are opened blockwise and all biddable terms
bidderwise are read out by DGH in Public
Any bidder can calculate its point and ranking ( provided
any bidding company otherwise qualify i.e. do not attract
any rejection criteria) DGH evaluates the bids and sends its evaluation reports
including recommendations to the Government
Government approves awards
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FISCAL TERMS
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No state participation either itself or through NOCs No OID cess or customs duty
No signature, discovery or production bonus
No import duties Fiscal stability during entire period of contract
7 year corporate tax holiday
Upto 100% cost recovery (biddable)
Fiscal RegimeFiscal Regime
Contd..
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Fiscal RegimeFiscal Regime
Special concessions for deepwater blocks
Production Sharing with the Government basedProduction Sharing with the Government basedon Pre Tax Investment Multiple (PTIM) Trancheson Pre Tax Investment Multiple (PTIM) Tranches
Securitization of participating interest for raisingproject finance
Full repatriation of profits
Liberal set off and carry forward of losses
Tax Incentives for Site Restoration FundScheme (SRFS)
contd..
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Royalty RegimeRoyalty Regime
Royalty pegged to the value of petroleum at WellRoyalty pegged to the value of petroleum at Wellhead :head :
Crude OilCrude Oil
12.5% for on12.5% for on--landland 10% for offshore10% for offshoreGasGas
10% for on10% for on--land and offshoreland and offshore
Deepwaters ( oil and gas)Deepwaters ( oil and gas)
Deepwater* : 5% for the first 7 yearsDeepwater* : 5% for the first 7 years
Royalty is cost recoverableRoyalty is cost recoverable
* beyond 400 m* beyond 400 m isobathisobath
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BID EVALUATION
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Qualifying CriteriaQualifying Criteria
Bidding Companies must ensure the following toavoid disqualification/rejection:
Mandatory 2D seismic API where required in NIO
At least of one exploratory well in Phase-II
Networth atleast equal or more than the cost of MWP
( including mandatory work programme whereapplicable) of Phase-I. In case of a consortium bid,this should satisfy individually for all the partners fortheir respective participating interest
Technical qualifying criteria for onland and shallowwater blocks ( other than S type blocks)
contd
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Qualifying CriteriaQualifying Criteria
Commitment for furnishing parent companyguarantee, if these parameters are based onPCs strength
Ineligible to bid as operator for the blocks
relinquished under NELP without completingMWP
Purchase of data package
Submission of completeinformation/documents/ certificats as per NIO
and bid format
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Criterion /Criterion /
Type of BlocksType of Blocks
Onland & shallowOnland & shallow
water Blockswater Blocks
DeepwaterDeepwater
BlocksBlocks
AA BB SS--
TypeType
AA BB
TechnicalTechnicalCapabilityCapability
QualifyingQualifying -- 3030 3030
Work programmeWork programme 4040 5050 4040 1515 2525
Fiscal packageFiscal package 6060 5050 6060 5555 4545
Total (Points)Total (Points) 100100 100100 100100 100100 100100
NELP: Bid Evaluation Criteria
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NELP: BEC Technical Capability
Onland & Shallow waterOnland & Shallow water DeepwaterDeepwater
Qualifying CriteriaQualifying Criteria
NonNon-- zero scorezero score byby designateddesignated
operator on operatorshipoperator on operatorship
experience andexperience and
NonNon-- zero scorezero score on any one of theon any one of thefollowing :following :
i) Acreage holding (all acreages)i) Acreage holding (all acreages)
ii) Reserve accretion (P1)ii) Reserve accretion (P1)
iii) Annual Productioniii) Annual Production
Evaluation CriteriaEvaluation Criteria
Evaluation of the followingEvaluation of the following
parameters:parameters:
i) Acreage holding ( PML)i) Acreage holding ( PML)
ii) Operatorship experienceii) Operatorship experienceiii) Reserve accretion (P1)iii) Reserve accretion (P1)
iv) Annual Productioniv) Annual Production
v) Consortium/ partnershipv) Consortium/ partnership
S (Small) type block : .Technical competence isS (Small) type block : .Technical competence is not requirednot required
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NELP : BEC Fiscal Package
Onland & shallow water BlocksOnland & shallow water Blocks Deepwater BlocksDeepwater Blocks
AA BB SS-- TypeType AA BB
PointsPoints 6060 5050 6060 5555 4545
Bidder to be evaluated on the basis of bid cost recovery percentage andoffered profit share to Government
Profit Petroleum to be computed based on assumed CAPEX, OPEX,
Production Profiles for each block and Price and production profile scenariosas per weightages under 9 scenario. All assumptions, capex,opex andproduction profiles are available on NELP-VII web site
Share of Government profit petroleum shall be computed taking a discount
rate of 10% over project life Bidder offering highest profit share to Government as per above will get
maximum points and others will get proportionate points accordingly
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NELP : Profit Petroleum SpiltNELP : Profit Petroleum Spilt
Illustration to show calculation of Govt. share of Profit petroleum whenPTIM is between 1.5 and 3.5
Bid PTIM ( Govt share ) - Upto 1.5 is 30% and for 3.5 and above 80%
In any year if the PTIM is between 1.5 and 3.5, then Govt profit share =Z % ,and Contractor's PP share shall be (100-Z)%
Z = a + [(b a) * (X 1.5)/2]
Where, a denotes Government share at PTIM upto 1.5b denotes Government share at PTIM 3.5 and aboveb should always be higher than aX denotes PTIM of Contractor at the end of preceding Year
PTIMPTIM GOVT PP ShareGOVT PP Share Contractor's PP ShareContractor's PP Share
X = 2.5X = 2.5 Z = 55%Z = 55% 45%45%
If PTIM(X) is 2.5 in the previous year, as per above example, the Govt.sshare (Z) in the subsequent year, would be 55%
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Evaluation of Fiscal packageEvaluation of Fiscal package
BidderBidder PTIM upPTIM up
to 1.5to 1.5((GovtGovtss
share )share )
PTIM ofPTIM of
moremorethan 3.5than 3.5
((GovtGovtss
share)share)
AnnualAnnual
CostCostrecoveryrecovery
Govt.Govt.
NPVNPV($MM)($MM)
PointsPoints
Deepwater BlockDeepwater Block--Type AType A
BidderBidder
AA 20%20%
70%70%
80%80%
791791
44.844.8
BidderBidderBB
30%30% 80%80% 80%80% 971971 5555
Analysis of BEC for SAnalysis of BEC for S typetype
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Analysis of BEC for SAnalysis of BEC for S-- typetype
blocksblocks
No technical capability requirement implies anycompany with financial resources can bid and qualify
for award Work programme and fiscal package to determine
points
Expected to attract a number of new players otherthan E & P players
Expected to result in aggressive bidding beyond
techno-economic rationality of the blocks on offer Therefore, one should be prepared to bid
aggressively to improve chances of winning block
(s)
Shallow and onland ( other thanShallow and onland ( other than
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Shallow and onland ( other thanShallow and onland ( other than
S type) blocks BECS type) blocks BEC
technical capability requiring just non-zeroscores implies there would be no difference
between a big E & P operator and a small E& P operator
Work programme and fiscal package to
determine points and ranking Expected to attract small E &P operators,
who believe with this BEC they have betterchance to compete
Small E & P players may give stiffcompetition to relatively bigger E & P players
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Deepwater blocks BECDeepwater blocks BEC
BEC provides advantage to E & P companies withdeepwater reserves and production head on
advantage If an E &P company as operator with deepwater
production joins an Indian Co., it can have upto 10
points advantage Work programme may not be generally aggressive
due to lower points 15 ( type A) and 25 ( type B)
Fiscal package may be good/aggressive as it carriessignificant weightage
Expected to interest some foreign deepwater E &P
producers with Indian tie-ups
Some uncertainty/ area ofSome uncertainty/ area of
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Some uncertainty/ area ofSome uncertainty/ area of
concernsconcerns
While NIO, PTG and Gazette NELP Policy of Feb, 1999provides availability of 7 years tax holiday and fiscal stabilityduring the contract, Finance Bill, 2008 defines the termm
mineral oil to exclude petroleum & natural gas. How to dealand structure the bid terms ?
Freedom to market gas price is subject to Gas Utilisation policyformulated by the Government from time to time. Further any
gas price formula now require prior Government approvalbefore going to buyers. This is subject to pulls and pressuresand may create uncertainty on market gas price realisation
Article 15.13 of the MPSC provides any upward variation in bid
cost estimates require GOI approval for the purpose of costrecovery.
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