Law may be updated for adequate oil assets compensation
The government is considering reforming the law governing the petroleum sector to protect investors against the expropriation of their assets, a measure that would directly address a key concern raised by energy giant ExxonMobil. The oil ministry has drawn up a proposal, which would entitle investors to reasonable compensation if the government expropriated their assets, according to people familiar with the matter. The oil ministry has completed consultations with the law, finance and other ministries on the matter, they said, adding that the proposal may soon be presented to the Cabinet. After the Cabinet’s approval, the proposal may be introduced in Parliament. India has introduced a slew of reforms in the past decade but has struggled to attract foreign investors to the exploration and production sector, primarily because some of the key issues have been left unaddressed creating uncertainties for oil and gas investors who already face enormous challenges due to climate change. ExxonMobil, which has spent years studying India’s geological data and expressed willingness to invest in the country, wants policies to be made more investor friendly. “India should offer globally competitive fiscals, enable those to stay intact, provide protection against expropriation, and (permit) neutral arbitration,” Monte Dobson, lead country manager-South Asia at ExxonMobil, told ET in January. The company wants exploration contracts to provide a legal shield against any move by the government to expropriate assets. “It’s really rooted in experience,” he said, citing the company’s experience in Venezuela where it faced expropriation after a change in government. Expropriations are rare but companies still want protection against those rare events, a person aware of the oil ministry’s thinking said. The ministry’s proposal is aimed at assuring investors that they are not going to lose money in the event of expropriation, he said. The windfall tax imposed on domestic oil production last year after crude prices sharply rose has also acted as a dampener for investors who see it as a government effort at making return on investment uncertain. Windfall taxes do not work in the long run, Dobson had said in the interview. “Such steps can shift investments away from a country over the long term,” he said.
High Court dismisses govt plea to enforce arbitral award against RIL
The Delhi High Court has dismissed the government’s petition seeking enforcement of a 2016 final partial award (FPA) of an arbitral tribunal, in a dispute with Reliance Industries over cost recovery provisions and reimbursement of royalties and taxes related to the Panna, Mukta and Tapti gas fields. The high court rejected the petition holding it to be “premature and not maintainable”. The 2016 FPA is “not an executable arbitral award” as it does not award any amount to the government, it said in the order on Friday. Reliance and Shell-owned BG Exploration & Production India had in December 2010 dragged the government to arbitration over cost recovery provisions, profit due to the government and also statutory dues including royalty payable. The companies wanted to raise the limit of cost that could be recovered from the sale of oil and gas before profits are shared with the government. However, the government raised counter claims over expenditure incurred, inflated sales, excess cost recovery, and short accounting. A three-member arbitration panel headed by Singapore-based lawyer Christopher Lau by majority issued an FPA on October 12, 2016, upholding the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33% and not the 50% rate that existed earlier. It also upheld the cost recovery in the contract, fixed at $545 million for the Tapti gas field and $577.5 million for the Panna-Mukta oil and gas field in the Arabian Sea off the Mumbai coast. The two firms wanted that cost provision to be raised by $365 million in Tapti and $62.5 million in Panna-Mukta. Subsequently, the tribunal with the consent of parties agreed to decide the dispute including various components of the cost recovery formula through a series of partial awards. It was only after all the FPAs were passed that the actual amounts to be paid were to be computed in the final award. The most critical issues to be decided were the cost recovery limit following which the investment multiple had to be recalculated. While the 2016 FPA, one in a series of FPAs passed by the arbitral tribunal, had not awarded any amount to the government, the oil ministry used this award to claim $2.31 billion from Reliance and partner BG Exploration & Production India by filing an execution petition in the HC.
India continues with May 16 windfall tax notification as prices haven’t changed much
Government has decided to continue with the May 16 windfall tax rates, as there hasn’t been much change in prices since then and now , sources tell CNBCTV-18. “Since there is not much change in prices, the earlier notification continues. It has not been withdrawn”, sources tell CNBCTV-18. The May 16 windfall tax notification had reduced the special additional excise duty on petroleum crude to nil from Rs 4,100/tonne. While SAED on diesel, petrol and ATF had continued at nil. This nil windfall tax regime will now continue till government notifies new rates. “We issue a notification only if there is a change,” a source told CNBCTV-18. The government has kept $75 as the trigger for windfall tax levy, below which the tax is nil. India’s crude oil basket has been consistently averaging below $75/bbl. It averaged $74.98 a barrel in May and so far in June it has further fallen to below $73/bbl . Given the present scenario it might just be possible there will be a zero windfall tax, unless crude oil prices make a comeback. The government reviews windfall tax levies every fortnight and it is likely the next review will happen around mid June.
Adani and Total bet on India’s LNG recovery
India’s liquefied natural gas imports are picking up after years of weak demand, as companies such as Total and Adani bet heavily on a turnround in a market that has so far defied lofty expectations. India has set ambitious targets to become one of the world’s biggest LNG importers by more than doubling the share of gas in its energy mix to 15 per cent by 2030, helping attract a wave of infrastructure investment. But the LNG import market has shrunk since the Covid-19 pandemic and Russia’s invasion of Ukraine, which pushed prices far higher than domestic fuels such as coal. India’s LNG imports rose for three consecutive months starting in March, with imports in May reaching 2.7bn cubic metres, according to Refinitiv. While still below pre-pandemic levels, companies argue the 66 per cent growth in imports in May compared to February heralds the beginning of a boom for India’s LNG sector. Petronet, the country’s largest importer, said last month it expects a “huge jump” in demand, while Adani Total, a joint venture between the French energy major and the embattled Indian group, said it expected “momentum and boost in the demand across India”. Adani Total in late May opened a new LNG terminal in Dhamra, on India’s eastern coast, with 5mn metric tonne per annum regasification capacity. It is the most significant development between the pair since US short seller Hindenburg Research in January accused Adani of engaging in fraud and market manipulation. Adani vehemently denies the allegations. Total and Adani struck the agreement to build Dhamra in 2018, their first project together. Total went on to invest more than $3bn across city gas distribution and solar power with Adani, though it paused a planned $4bn investment in a green hydrogen venture following Hindenburg’s allegations. The French company has defended its continued relationship with Adani. The Dhamra terminal “reflects TotalEnergies’ ambition to support India’s energy transition and supply security”, Total said in April. Analysts said the Dhamra terminal is poised to capture gas demand in India’s less developed but populous east. “It’s a crucial terminal [as] India is trying to achieve 15 per cent gas,” said Ayush Agarwal, an analyst with S&P in India. Yet the outlook for India’s LNG market remains uncertain. Agarwal said he does not expect demand to pick up significantly until next year onwards, while India’s existing LNG infrastructure remains heavily underutilised.