Rajya Sabha passes oil and gas exploration bill. Here's why it is a big deal

Oil and gas exploration in India just got a big boost.

The Rajya Sabha on Wednesday passed the Oilfields (Regulation and Development) Amendment Bill, 2024 via voice vote.

Oil Minister Hardeep Singh Puri said, “We need oil and gas sector 20 more years. We need to bring this legislation here to provide a win-win confidence not only to our own operators but also to foreign investors so that they can come and do business here with view to benefit everyone.”

Puri added that policy stability, dispute resolution and sharing of infrastructure , especially for small players are new provisions in the bill.

The opposition had demanded that the bill be sent to a standing committee.

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But what do we know about this bill? Why is it a big deal?

Let’s take a closer look:

What do we know?

The bill was first introduced in the Upper House in August – during the Monsoon Session.

It seeks to make key reforms to the laws governing exploration and production of oil and gas .

Originally, oilfields, mines, and minerals were comprehensively regulated through the Mines and Minerals (Regulation and Development) Act, 1948.

Subsequently, in 1957, the Mines and Minerals (Development and Regulation) Act, 1957 was enacted for the development and regulation of mines and minerals under the control of the central government.

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The original Act of 1948 was also renamed as the Oilfields (Regulation and Development) Act, 1948, (the said Act) and made applicable to mineral oils only.

The bill proposes to introduce ‘petroleum lease.’

The new bill will empower the central government to make rules on several matters such as regulating the grant of leases, terms and conditions of leases including the minimum and the maximum area and the period of the lease, conservation and development of mineral oils, methods for producing oil, and manner of collection of royalties, fees, and taxes.

The amended bill also provides for mining leases, this will include various activities such as exploration, prospecting, production, making merchantable, and disposal of mineral oils.

The new bill will replace the mining lease with a petroleum lease to cover a similar set of activities.

According to the Economic Times, this would bring India in line with international standards.

However, existing mining leases granted under the old Act will continue to be valid.

“We carried out large-scale stakeholder consultations. Not only the five oil majors, and almost invariably all of them, including other stakeholders told us that our legal framework required tweaking, but major changes. This Bill seeks to eliminate punishments in the form of imprisonment and enhances penalties for compliance and expeditious mechanism for levying penalties and handling appeals,” Puri was quoted as saying by Indian Express.

‘Ensure policy stability’

The bill “aims to ensure policy stability for oil and gas producers and allow international arbitration and extend lease period” over areas for producing fossil fuels, Puri said.

It aims to decriminalise some of the provisions of the original 1948 law by introducing “penalties, adjudication by an adjudicating authority and appeal as against the order of adjudicating authority.”

“We want to ensure that investors will have more confidence to come here unlike the dull period between 2006 and 2014. There will be one lease, one licence. If there is dispute then for dispute management there will be predictability and stability," Puri said.

It also looks to delink petroleum operations from mining operations to boost investment in the sector.

“Since petroleum is extracted by drilling, delinking terms like ‘mine,’ ‘quarried,’ or ‘excavated’ will introduce ease of doing business into the sector, which is more technologically driven,” Puri was quoted as saying by Economic Times.

Changing definition of mineral oil

As per the newspaper, the definition of “mineral oil” has also been changed in keeping with the developments in the energy sector.

Mineral oil will also refer to unconventional hydrocarbon resources – which means the law can keep up with new technologies and exploration methods.

It expands the definition of mineral oils to include crude oil, natural gas, petroleum, condensate, coal bed methane, oil shale, shale gas, shale oil, tight gas, tight oil and gas hydrate.

However, it clarifies that mineral oils will not include coal, lignite or helium.

This is with view to raising domestic output and cutting reliance on imports.

Puri also explained the point of helium raised by members, saying that mineral oils are naturally occurring hydrocarbons and thus helium is not a hydrocarbon.

As per Economic Times, the bill also aims to provision for India’s climate goals and energy transition.

It allows the Centre to create rules for protecting the environment, promoting green energy projects, and adopting energy transition measures.

This will allow both the Centre and private players to keep operations aligned with national and global sustainability targets.

For cases of violation of rules, the bill provides to hike the punishment and penalty from a current fine of Rs 1000 to Rs 25 lakhs. In cases of exploring, prospecting and production without a valid lease a penalty of Rs 25 lakhs and continued violations will attract a penalty of Rs 10 lakh per day.

“The provision seeks to strengthen the mechanism for enforcing compliance by focusing on enhanced penalties and doing away with imprisonment, thus decriminalising the sector,” Puri was quoted as saying by Economic Times.

For dispute resolution, the central government will appoint an officer of the rank of joint Secretary or above for adjudication of penalties. Appeals against the decision of the adjudication officer can be filed at the Appellate tribunal specified in the Petroleum and Natural Gas Board Regulatory Board Act, 2006.

The government in the Bill said there is an urgent and pressing need to increase domestic production of oil and gas to meet the rising demand for energy and reduce import dependence of the country.

“In order to unlock valuable mineral oil resources, it is necessary to attract investment in the sector to infuse necessary capital and technology for expediting petroleum operations in the country by creating an investor-friendly environment that promotes ease of doing business, prospects for exploration, development and production of all types of hydrocarbons, ensures stability, promotes adequate opportunities for risk mitigation, addresses energy transition issues including next-generation cleaner fuels and provides for a robust enforcement mechanism for ensuring compliance of the provisions of the said Act,” the bill read.

India imports more than 85 per cent of its crude oil needs and about half of its natural gas requirement.

Prime Minister Narendra Modi on Tuesday described the Oilfields (Regulation and Development) Amendment Bill, 2024, as an important legislation that would boost energy security and also contribute to a prosperous India.

Modi said, “This is an important legislation which will boost energy security and also contribute to a prosperous India.”

Puri said India’s rapidly growing energy sector took a historic step into the future with the landmark amendments to the Oilfields (Regulation and Development) Act, 1948, being successfully passed in the Rajya Sabha.

With inputs from agencies