Oil ministry
wants infrastructure status to energy exploration and production business
·
Story
NEW
DELHI: The oil ministry has urged the finance ministry to accord infrastructure
status to energy exploration and production (E&P) business, arguing that it
meets the six qualifying criteria, including 'non-rivalness' and
'non-tradability', approved by the Cabinet.
Infrastructure status will give E&P firms such as Oil and Natural Gas Corporation, Reliance Industries, Cairn, Oil India and Gujarat State Petroleum Corporation easy access to cheap funds and fiscal concessions, government officials and industry executives said.
Oil ministry officials said the panel constituted by the Cabinet Committee on Infrastructure, which recommends to the finance ministry businesses to be included in the list of infrastructure, was not convinced that the E&P sector meets non-rivalness and non-tradability criteria as crude oil and natural gas are tradable commodities, which are also supplied to competing refineries.
The panel, headed by the secretary of the Department of Economic Affairs, however, agreed that the E&P sector meets other criteria, these officials said. The Cabinet Committee on Infrastructure had decided on March 1 to include new sectors in the harmonised list of infrastructure only if they met the six characteristics of infrastructure: natural monopoly; high sunk costs and asset specificity; non-tradability of output; non-rivalness in consumption; possibility of price exclusion; and presence of externalities.
Arguing in favour of E&P, the oil ministry wrote earlier this month to the finance ministry that crude oil and natural gas are tradable commodities, but their extraction is possible only after creating huge infrastructure, which is non-tradable. "The nature of production of crude and gas is such that the sale of product is at the well head and that remains fixed," the oil ministry note said.
The note compared E&P activities to power generation and transmission business, which is in the list of infrastructure. "Although the supplies by the E&P sector to refineries or gas distribution sector are not completely non-rival in nature but akin to the power generation sector, wherein the generation plant supplies to distribution utility, which off takes in bulk and in turn provides public good," it said.
Industry associations such as the Confederation of Indian Industry have said that E&P should be treated at par with infrastructure to encourage investment, especially when India imports more than two-thirds of its crude oil requirement.
The decision to keep the sector out of the list "is likely to have huge adverse implications on the sector - affecting both oil and gas industry's ability to access funds as also other benefits attached to the infrastructure sector," CII said in a letter to the finance ministry.
The current list of infrastructure includes roads and bridges; port; airport; electricity generation, transmission and distribution; oil pipelines, liquefied natural gas storage facility; telecommunication towers; educational institutions; hospitals and three-star or higher category classified hotels located outside cities with population of more than one million.
Infrastructure status will give E&P firms such as Oil and Natural Gas Corporation, Reliance Industries, Cairn, Oil India and Gujarat State Petroleum Corporation easy access to cheap funds and fiscal concessions, government officials and industry executives said.
Oil ministry officials said the panel constituted by the Cabinet Committee on Infrastructure, which recommends to the finance ministry businesses to be included in the list of infrastructure, was not convinced that the E&P sector meets non-rivalness and non-tradability criteria as crude oil and natural gas are tradable commodities, which are also supplied to competing refineries.
The panel, headed by the secretary of the Department of Economic Affairs, however, agreed that the E&P sector meets other criteria, these officials said. The Cabinet Committee on Infrastructure had decided on March 1 to include new sectors in the harmonised list of infrastructure only if they met the six characteristics of infrastructure: natural monopoly; high sunk costs and asset specificity; non-tradability of output; non-rivalness in consumption; possibility of price exclusion; and presence of externalities.
Arguing in favour of E&P, the oil ministry wrote earlier this month to the finance ministry that crude oil and natural gas are tradable commodities, but their extraction is possible only after creating huge infrastructure, which is non-tradable. "The nature of production of crude and gas is such that the sale of product is at the well head and that remains fixed," the oil ministry note said.
The note compared E&P activities to power generation and transmission business, which is in the list of infrastructure. "Although the supplies by the E&P sector to refineries or gas distribution sector are not completely non-rival in nature but akin to the power generation sector, wherein the generation plant supplies to distribution utility, which off takes in bulk and in turn provides public good," it said.
Industry associations such as the Confederation of Indian Industry have said that E&P should be treated at par with infrastructure to encourage investment, especially when India imports more than two-thirds of its crude oil requirement.
The decision to keep the sector out of the list "is likely to have huge adverse implications on the sector - affecting both oil and gas industry's ability to access funds as also other benefits attached to the infrastructure sector," CII said in a letter to the finance ministry.
The current list of infrastructure includes roads and bridges; port; airport; electricity generation, transmission and distribution; oil pipelines, liquefied natural gas storage facility; telecommunication towers; educational institutions; hospitals and three-star or higher category classified hotels located outside cities with population of more than one million.
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