Petroleum Ministry resists creation of independent regulator for the oil and gas sector

29 Jun 2011 Evaluate

The Petroleum Ministry is not in support of creating a new independent regulator for oil and gas sector, raising uncertainties on the implementation of key suggestions made by the high-powered committee, created to recommend changes in the mechanism for the allocation natural resources.

The petroleum secretary G C Chaturvedi has registered a formal disagreement on the committee’s finale report and disapproves the need for a new upstream regulator for the sector. The high-powered committee which included 14 senior bureaucrats and two industry representatives, led by the former finance ministry secretary Ashok Chawla, has disagreed with the suggestions made by the petroleum secretary to reorient the current role of the Directorate General of Hydrocarbons (DGH) and setup the new upstream regulator.

The Chawla committee has submitted its report to government earlier this month. The present structure and functioning of the DGH, the ministry's technical arm and a deemed regulator for the sector, came in for particular scrutiny of the panel, which asked the government to shut what it called the 'revolving door' that allowed oil industry executives to work at the DGH on deputation and go back to their firms.

The functioning of DGH has been criticized by the Comptroller and Auditor General, for allowing the country’s biggest industrial group to inflate cost for the KG-D6 basin, denying the government its rightful share of revenue. The Central Bureau of Investigation (CBI) is investigating a possible corruption case against former DGH head VK Sibal for favouring Reliance. The V K Sibal was on deputation from state-run Oil India (OIL) to the DGH. The current DGH head, S K Srivastava, was also OIL’s operational director before taking the charge of DGH in November 2009.

Ashok Chawla committee has advised government to turn DGH into an independent technical office, under the oil ministry and to establish an upstream watchdog to focus on regulatory roles. 'While staff can be drawn from oil companies and other regulated firms, there needs to be restrictions on subsequent employment in such firms. Such a revolving door policy is not congruent with neutral regulation,' the Ashok Chawla panel report said. The committee also said the reconstituted DGH as well as the regulator must not have staff on deputation from regulated firms.

Though, the petroleum secretary Chaturvedi protected the current system in his dissent note. 'Normally a regulator in any field is required when level playing field to all the parties needs to be provided. In the upstream sector, policies such as NELP (New Exploration Licensing Policy) already provide a level playing field to all companies. Therefore, the ministry has been of the view that a separate independent regulator for upstream sector is not required,' Chaturvedi said.

Chaturvedi also said because of geological complexities and uncertainties, technical monitoring of the upstream sector was carried out in several countries by government agencies. 'The same practice through DGH is being followed in India,' his note added.

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