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Energy sector: The road ahead
Fri, 27 Dec Pre-Open

The Indian oil and gas sector has been a victim of neglect for quite a few years now. Regulated pricing mechanism for fuels and adhoc subsidy sharing practice has been a policy drag on the sector. In addition to that, high reliance on crude imports, falling rupee and decline in the domestic gas further added to the concerns and pressure on the government in 2013.

However, amidst all these worries, the sector witnessed some important events during the year. The most important of these is the hike in the gas prices from April 2014. In the wake of falling domestic gas supplies, especially from KG D6 basin, the country is meeting its needs from imported gas that costs around three times of the domestic gas. The decline in rupee makes it further costlier to import.

The hike in the gas prices is expected to incentivize domestic gas exploration and hence reduce reliance on costlier gaseous imports. However, we expect the move will burden consumers even further with high gas prices along with constrained gas supplies. Afterall, the reasons quoted for fall in supplies are geological complexities, an issue which hike in gas prices can not resolve.

Another move that is worth mentioning here is the phased hike in the diesel prices. The benefits of the price hike were quite limited due to depreciation in the domestic currency. Again, it was the consumers who had to bear the extra burden. Meanwhile, nothing was done to rationalize fuel taxes in the interests of the public.

Whether these moves have been able to revive interest in the oil and gas sector will become obvious as government is launches tenth round of National Exploration Licensing Policy (NELP-X) in January 2014. No doubt that the government is trying hard as for the first time it is trying to get the required approvals for the development of the block. Another good thing that deserves a mention here is the decision is to shift to revenue sharing model with the companies. However, even if the response to the NELP round is good, the responsibility of the government does not end there. It needs to make sure that the production sharing contracts are honored and the national resources of strategic importance are not taken for granted.

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