Govt relaxes production sharing contracts of pre-NELP and NELP blocks, lowers ONGC burden

The centre allows sharing of levies like royalty and cess in proportion to the participating interest of the contractor in pre-NELP blocks

GN Bureau | July 20, 2018


#ONGC   #PSU   #NELP  

In order to boost domestic production of hydrocarbon resources, the centre has approved the policy framework for streamlining operations of production sharing contracts (PSCs) in pre-NELP (new exploration licensing policy) and NELP blocks.

The policy framework includes special dispensation for exploration & production (E&P) activities in the north eastern region (NER).

Based on recommendations in Hydrocarbon Vision 2030 for the north east, the government has extended timelines for exploration and appraisal period in operational blocks of NE region considering geographical, environmental and logistical challenges. The exploration period has been increased by two years and appraisal period by one year. To stimulate natural gas production in NER, the centre has allowed marketing including pricing freedom for natural gas to be produced from discoveries which are yet to commence production as on July 1, 2018. PSC blocks in NER will be benefited from this decision.

The government has allowed sharing of levies like royalty and cess in proportion to the participating interest of the contractor in pre-NELP exploration blocks, and same has been made cost recoverable with prospective effect. It will benefit pre-NELP exploration blocks in which fresh investment for additional development and production activities is expected as sharing of royalty and cess, and cost recoverability of same will help in making additional investment commercially viable for licensee company; ONGC/Oil India Limited.

The centre has agreed to extend tax benefits under section 42 of Income Tax, 1961 to operational blocks under pre-NELP discovered fields for the extended period of contract under PSC extension policy dated March 28, 2016. The Income Tax provision now allows the firms to claim 100 percent of expenditure incurred under a PSC as tax deductible in the same year. While signing PSC of pre-NELP discovered fields, 13 contracts out of 28 contracts did not have provision for tax benefit. Now, it will bring uniformity and consistency in the PSCs and provide incentive to contractor to make additional investment during the extended period of PSC.

 
 

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