policy implications nelp

7/30/2019 Policy Implications NELP

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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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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


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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