Oil hunt tax sop on agenda

The government plans to offer tax incentives in the next round of bidding for oil and gas blocks, to be launched later this month, to attract global firms.
At present, oil companies get a seven-year tax waiver on their income for selling crude from a block. However, there is no such benefit for natural gas production. An exception was made for the eighth round of bidding that was held last year.
“Efforts are on to make Nelp (New Exploration Licensing Policy) more attractive and bring parity between oil and gas. We had taken up the issue with the finance ministry and they have agreed in-principle to the suggestion. The E&P firms are likely to get tax benefits as suggested in the direct taxes code,” a senior oil ministry official said.
Under the present income tax law, profit-linked incentives are available for a specified number of years. The direct taxes code proposes to substitute this with investment-based incentives, with capital expenditure in specified businesses eligible for deduction. The bill suggests that the period required to recover the investment will get tax holiday.
Deloitte ’s Surendra Prakash Singh said, “Resource potential of the block will be the key factor for attracting investments in exploration and production from now on as the taxation in DTC proposals are similar to global standards.”
The government plans to launch the next auctions — the ninth in the series — offering 34 oil and gas blocks compared with 70 in the previous round.
The directorate general of hydrocarbons (DGH) plans to have its first road show in Mumbai with bidding expected to open six months later, said a DGH official. The official said unlike the eight round where 10 coal bed methane blocks were awarded, no such areas will be on offer.
Kuwait Foreign Petroleum Exploration Company, a subsidiary of Kuwait Petroleum Corporation, has said it will join ONGC for the Nelp IX auctions.
Global entities Exxon Mobil, ConocoPhillips and Petrobras are expected to keep an eye on the roadshow.
Domestic companies such as ONGC, Bharat Petroleum, Hindustan Petroleum, Indian Oil, GAIL (India), Reliance Industries and Essar Oil are expected to bid as also overseas majors Niko, BG, Cairn Energy and Shell.
The official said the government expected a good response as the economic situation had improved since the last round, and international crude oil prices had stabilised in the $70-$80 range, a comfort zone for both the producers and consumers of oil.
Since 1997, when the government launched Nelp, it has awarded 239 blocks. Of these, 68 discoveries of oil and gas have been made in 19 blocks, establishing reserves of 500 million tonnes of oil and oil-equivalent gas.

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