Old oil blocks to get tax sops even if ouput delayed

By Subhash Narayan

New Delhi, June 19 (IANS) Hydrocarbon exploration companies may be given more time to commercialise their finds with the government looking at a new policy to augment the country's flagging domestic oil and gas production, official sources said on Wednesday.

They said that a proposal is being considered by the oil ministry that may allow oil companies get tax incentives like a tax holiday scheme even if there is a delay in bringing an exploration block to production.

The move will benefit companies such as state-run ONGC and private players Reliance, Cairn Oil and Gas and Nayara Energy who have participated in the auction of various oil and gas blocks by the government but are yet to commercialise several of their finds.

It is expected that the announcement on extending the tax holiday sunset given under section 80-IB of the Income Tax Act may be made in the upcoming Budget as the government wants to give a signal to investors that it remains committed to the cause of boosting domestic oil and gas production.

The Finance Act, 2011, withdrew the tax holiday for production from blocks which were awarded under contracts licensed after March 31, 2011. Later, the Finance Act, 2016, introduced a sunset clause which provided that no tax holiday would be available if commercial production of oil is started after March 31, 2017.

These provisions have disincentivised several exploration projects where commercial production has got delayed due to geological, regulatory, or operational factors. While oil and gas blocks awarded after March 31, 2011, are not covered by any tax incentive scheme, the changes would allow previous exploration activities to get a level playing field.

"The changes would help the country to increase domestic oil and gas production that has stagnated for the past few years. And here, the best case is to incentivise exploration blocks where a lot of investment has already been made and chances of exploration into commercial production is high," said a government official privy to the development.

The previous NDA government had set a target of reducing India's import dependence on oil by 10 per cent by 2022.

However, rather than reaching closer to the target, the country's import dependency on oil increased from 78.3 per cent of total consumption in 2014-15, settling at a new high of 83.7 per cent in 2018-19. During this period, domestic crude oil production has also stagnated around 35-36 million tonnes (MT) per annum. In fact, production has fallen to 35.7 MT in fiscal 2018 and fell further to 34.2 MT in 2019.

(Subhash Narayan can be contacted at subhash.n@ians.in)