We Can Mine Our Way To Prosperity

Article by Mr. Anil Agarwal, Chairman – Vedanta Group
Published in Hindu Business Line, Chennai Edition - 12th February 2014

Government should create the right policies and stick to its contractual obligations

Oil is one of the most influential and more vulnerable commodities that impacts the price of almost everything. Affordable oil can instantly reduce prices of everything from groceries to heavy machinery. The volatility of the entire range of manufacturing, service and business sectors across the globe revolves around the pricing of oil.

In a developing country like India, people expect the government to provide cheaper and affordable oil and gas. This is quite possible. Cairn India produces oil at $4 per barrel. What, perhaps, people do not know is that subsequently, almost $70 per barrel goes to the government as royalties and taxes. Cairn India’s share is just about 20 per cent.

Honour contracts 
Cairn India is paying about Rs. 24,000 crore a year to the government. This can go up to Rs. 50,000 crore, the highest royalty and taxes outgo in the corporate sector. But the government has imposed an additional royalty, a cess of 5 per cent, which has put an additional burden of Rs.7,000 crore annually on Cairn India.
Unfortunately, this perhaps is the first instance where an original contract has been dishonored by the government itself. We expect the government to reconsider the decision and make production from marginal fields more viable.
This will only enhance the credibility of the government in the international market and will send out a message that India wants companies to invest and is not averse to them making reasonable profits. This can be easily done by honoring its contracts and commitments.

Self declaration
Cairn India is concerned about the time-consuming clearances required from the Ministry of Petroleum and Natural Gas, and ONGC, our 30 per cent equity partner. Why can’t we move to a procedure of self-declaration and post audit system, which would only help increase the production through timely investments? Cairn India’s automatic extension of licenses is also long awaited, which will only facilitate long term capital infusion.

If investments in exploration and expansions are speeded up and bottlenecks are removed, it would also substantially increase the contribution to government coffers.
Oil and Gas being one of the most influential commodities, the PMO may like to monitor all important clearances and expedite the same. It is a question of our energy security. If we can produce oil at $4, why import at $100? We must realize that we are sitting on a large pool of oil and gas. We need at least 20 large companies and Indian entrepreneurs should be encouraged to take this challenge.

That said, there should not be any discrimination between the public and private sectors. Incidents such as ONGC being recently allowed to produce shale gas, and the private sector being denied has hurt business sentiments.

Growth avenues
Most companies re-deploy profits if fully incentivised. That is what China and US have done. US is self sufficient with this simple policy and allows people to make reasonable money. If we do the same, we can eradicate poverty by creating more jobs for our future generations.
I have always said India has enough potential to produce $400-500 billion in natural resources like oil and gas, gold, silver, iron ore, copper, coal, calcium, rock phosphate and others. It is bound to generate substantial revenues, of which more than half would go to the government. And this will be helpful in infrastructure development.
This will also create employment for 10-15 crore people, by way of thousands of downstream industries. The GDP will improve, deficit will reduce and it will be a win-win situation. Investment in exploration is a must for our future generation. The model may be revenue sharing, or whoever pays higher royalty.