News: Divestment condition waived for global oil firms in India

(BS 11/08/2006) New Delhi - Subsidiaries of foreign petroleum and gas companies investing in India or those with existing operations will no longer need to mandatorily disinvest 26 per cent of their equity to the public or a strategic Indian partner.

Instead, such companies will soon be allowed to be set up operations through the automatic route.

While a formal decision on this will be taken soon, the ministry of petroleum and natural gas has agreed with this recommendation made by the Ratan Tata-headed Investment Commission.

At present all activities, including refining, are carried out through the automatic approval route for foreign investment up to 100 per cent subject to sectoral policies.

For trading and marketing of petroleum products, there is an additional requirement of disinvesting 26 per cent within five years to an Indian partner or the public.

The Investment Commission had also said the dominance of public sector units in the petroleum value chain and the perceived lack of a level playing field appear to favour the incumbents. It also pointed to the restrictions on FDI and minimum investment clauses, especially in marketing.

In reply, the petroleum ministry has said that it would want to retain the existing FDI provisions for the PSUs as it relates to the public sector retaining its character.

It further underlined the 100 per cent FDI allowed in the upstream segment under the New Exploration Licensing Policy and coal bed methane.

However, the ministry insists that for ensuring a level playing field for both domestic and foreign players, respective sectoral policy should continue to apply in all cases involving FDI.

On the suggestion to enact a Natural Gas Pipeline Policy, the ministry has said the policy is to be finalised shortly. The proposed policy envisages participation of both the public and private sectors in the developing pipeline infrastructure.

On a suggestion to identify 25 to 30 sites for mega power projects, the power ministry has pointed out that this is akin to the ultra-mega power projects, the process for which is currently underway.

It has also said that since the law does not distinguish between rich and poor states, additional charges on generation and export of power need to be discouraged.