The Union Cabinet's decision to give crude oil producers freedom to sell oil to any Indian refinery will help increase government revenue and help attract investment in exploration and production, industry leaders said.
The government on June 29 allowed firms like ONGC and Vedanta to sell locally produced crude oil to any Indian refinery for turning it into fuels such as petrol and diesel.
While contracts for oilfields awarded since 1,999 gave producers the freedom to sell oil, the government fixed buyers for crude produced from older fields such as Mumbai High of ONGC and Ravva of Vedanta.
Vedanta Chairman Anil Agarwal termed the decision as a "landmark" that "will help increase revenue for the Government."
"India has vast reserves of hydrocarbons and can produce oil and gas at the lowest cost. Rationalization of taxes and levies and longer lease of mines, in line with global standards, along with self-certification will help boost India's domestic production," he added.
The move, he said, "will attract many national and international companies to do exploration and production in India and encourage international investments in the sector."
"At Vedanta Cairn Oil & Gas, we are committed to make USD 4 billion investment and contribute to 50 per cent of India's domestic hydrocarbon output," he said without giving a time frame for achieving the target.
A top official of the Oil and Natural Gas Corporation (ONGC) too welcomed the decision saying it made no sense for the government to be deciding the buyers when pricing was already deregulated. From October 1, ONGC can auction its 13-14 million tonnes a year of crude oil produced from Mumbai High field to any refiner, including private sector Reliance Industries Ltd and Rosneft-backed Nayara Energy.
The firm at present has to sell the Mumbai High crude oil to state-owned Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL). It could not sell the oil to its own Mangalore refinery, which had conceived a petrochemical complex on the premise that five million tonnes of Mumbai High crude could be turned into value-added PTA and Benzene.
ONGC can auction crude oil produced from other places such as Gujarat, Assam and east coast. Oil India Ltd (OIL) too can do the same.
Vedanta's Cairn Oil & Gas will get the freedom to sell oil from its Ravva oil field in eastern offshore. It currently sells Ravva crude only to HPCL.
The firm however already sells oil from its mainstay Rajasthan fields to both public and private sector refiners.
The Rajasthan contract provides for crude being sold to the government or its nominated offtake. But it also states that the company is free to sell it to anyone in case the government or its nominee is unable to offtake the crude.
Welcoming the decision, Prachur Sah, Deputy CEO, Cairn Oil & Gas, said it was an important decision that will further encourage oil and gas exploration, production, and marketing in the country.
"This deregulation will attract more foreign players, encourage competition, and also help producers gain a higher price realisation and better return on investments," he said.
"Marketing freedom will lead to optimal price realisation and support faster monetisation of India's resource base. This decision will play a key role in India's journey towards energy aatmanirbharta."