Oil demand in India will grow over the next five years and beyond, driven by demand for its exports and a rapidly growing domestic market. India’s significant supplies of indigenous oil have been dwindling for the past 15 years. A slight apparent increase in oil production in the last two years indicates that about 26% of the total national oil needs can be met from domestic sources.
The country’s incremental demand for oil in the coming years is expected to exceed domestic production, resulting in the share of indigenous sources falling to 22% by 2016.
Government inefficiency, burdensome bureaucratic procedures and regulatory uncertainty are slowing down India’s energy sector and restricting the investments the economy needs for sustainable growth. Industry insiders attending a recent discussion highlighted the slow pace; bureaucratic authorizations are hindering the extraction and exploration of oil and gas in the country.
According to a recent report from HSBC global, this pegs the Q1FY2012 growth rate at just 5.3% yoy, the lowest since 2004. Among the main reasons attributed to the low growth rate is policy paralysis. The oil and gas sector in India has also been struggling to cope with the policy stalemate that is weighing on investor confidence.
Arguing that a sustainable economy requires long-term investment, RS Sharma, former CMD, ONGC, noted that the lack of a central authority requires efficient coordination between the various ministries involved, which could be difficult. Multiple shipments also add to the costs incurred and result in long delays. Therefore, the ministries involved in energy project authorizations need to coordinate better, thus reducing the number of hurdles.
Reducing the number of required permits from, say, 60 to just 10 would be a major reform, says Dr. Kirit Parikh, a former member of the Planning Commission. Removing administrative hurdles would also encourage investments that could boost India’s GDP to a double-digit growth rate.
As a measure to counter pessimism and boost investor confidence, PMO is exploring the possibility of Special Purpose Vehicles (SPVs). This would give the authority to grant authorizations and licenses to SPV, which would be working under the Ministry of Petroleum and Natural Gas. While some experts believe this approach could be useful, putting it into practice remains a question. In addition, the waiting time for the installation of the SPVs and the status of the licenses acquired under the current mechanism remain unclear, which has raised doubts about the successful implementation of the proposed idea. Immediate concerns with the sector have fueled demand for short-term solutions that ensure better coordination under the current mechanism.
The industry’s comatose state is not solely due to inefficiencies in licensing. According to JK Dadoo, Deputy Secretary of the Ministry of Trade and Industry, 60 discoveries were made after the introduction of the New Exploration Licensing Policy (NELP), of which 51 were for gas discoveries. Only two of the 51 are in production even after authorizations have been granted. This could also indicate a possible constriction in the downstream segment.
However, there seems to be a unanimous consensus among experts when it comes to speeding up the process. The current process is marked by the involvement of multiple regulatory bodies, which contributes to the existing problems. Ensuring a smooth process in granting approvals would allow the sector to take advantage of the rich oil and gas resource base, which could put faltering economic growth back on track.