India eyes tax holiday to lift energy sector

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By Joe Leahy and Varun Sood

BOMBAY — India’s cabinet is trying to resolve a dispute over whether to grant all operators in the oil and gas industry a seven-year tax holiday in an attempt to get its exploration industry off the ground again.

The finance ministry last year excluded natural gas from the tax holiday offered to other exploration companies in a step that affected Reliance Industries, controlled by billionaire industrialist Mukesh Ambani, which is developing the country’s biggest gas discovery, the KG Basin.

“The cabinet is looking at this issue now,” said a person familiar with the negotiations. India urgently needs to develop its oil and gas reserves to lessen its dependence on imports, which account for nearly three-quarters of domestic consumption.

There have been seven rounds of auctions by the government of exploration blocks, in a scheme known as the National Exploration Licensing Policy.

The Nelp scheme has been lauded for revolutionising oil exploration in India because it provided operators with a transparent way to tender for blocks. Bidders were further encouraged by the seven-year tax holiday provided to exploration companies under the scheme.

But last year, the seventh round of the Nelp auctions ran into trouble after the removal of the tax holiday for natural gas exploration companies.

The move affected state-run Oil and Natural Gas Corporation as well as Reliance, whose KG Basin is seen as the poster boy of India’s modern exploration efforts.

The field, which began production earlier this year, will provide 40 per cent of India’s domestic hydrocarbon production when it reaches full capacity of 80m standard cubic metres a day of production.

The government is now contemplating launching an eighth round of Nelp auctions but first needs to sort out the tax issue.

The issue comes as Mr Ambani’s Reliance Industries is also locked in a court battle with Reliance Natural Resources, a company controlled by his estranged younger brother, Anil Ambani, over the price of the gas. The Bombay High Court has ordered the pair to discuss an out-of-court settlement to a dispute in which Reliance Industries is seeking to provide gas to Reliance Natural Resources at a higher price than the brothers had allegedly earlier agreed.

The other predicament facing the government and state-owned oil companies as they try to get India’s oil industry into shape is whether to raise domestic oil prices. With the price of crude having recently increased to about $70 a barrel from about $50 a barrel in late April, the Indian government is facing a huge bill for fuel subsidies.

ft.com

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