Archive for December, 2015

India’s quest for oil and gas – more questions than answers

The Petroleum Ministry of the Government of India has gone into overdrive with two recent policy announcements. It decided to offer 69 small oilfields for development through an international bidding process and has floated a consultation paper on the future contours of oil and gas exploration policy.  The controversies with Reliance over the KG-D6 field development led the UPA government to constitute the Rangarajan Committee to suggest an appropriate contractual framework for petroleum exploration and production in India. Probably, at least in part as a response to dissatisfaction of oil companies with this report, another Committee under Dr. Vijay Kelkar, which included members with experience in the upstream petroleum industry, was constituted over two years ago to suggest measures to meet India’s hydrocarbon requirements over the next two decades. The recommendations of this Committee, which landed on the table of the present government over a year ago, seem to have been partially acted upon, as will be shown later in this article. What defies logic is the present move to again launch a consultation process with stakeholders on hydrocarbon exploration policy. Oil companies, national and private, have forcefully put forth their views over the past three years; there is little or nothing left for them to say further. But an examination of the major issues raised in the consultation paper show that the same path as in the past is being traversed by the government, with the same old wine being served in the same old bottles. It may, hence, be instructive to see what the consultation paper highlights and what it implies for government action in the coming months.

There can be no quibble with the proposal to adopt a uniform licensing policy for all forms of hydrocarbon resources, ranging from conventional oil and natural gas to unconventional sources like shale oil/gas, coal bed methane, gas hydrates, etc. The decision to go in for an open acreage licensing policy (OALP), which was one of the recommendations of the Kelkar Committee, is also welcome. However, this requires a much firmer stand of the Petroleum Ministry and the Directorate General of Hydrocarbons (DGH) vis a vis the national oil companies (NOCs), ONGC and OIL, in matters relating to acreage on offer and availability of data. Private companies have always had the grouse that the NOCs are loath to relinquish acreage allotted to them in the past on nomination basis by the government. The same rules that apply to companies under the New Exploration Licensing Policy (NELP) ought to be applied here: areas that have not seen any NOC exploration or development activity in a reasonable time frame should be relinquished by them and offered under OALP to remove any discriminatory treatment in favour of the NOCs. The DGH should also develop a strong data repository (another recommendation of the Kelkar Committee) and ensure that all geological data, including from those areas currently or formerly held by the NOCs and other companies, is freely available for inspection and analysis.

It is the other two points in the consultation paper which give cause for concern. Despite the Kelkar Committee marshalling very good arguments for continuing with a petroleum profit-sharing arrangement, the Petroleum Ministry has stuck to its guns in going in for a revenue-sharing system. The revenue sharing model militates against private risk-taking in that it transfers the entire risk burden to the investor. With royalty and a share of gross revenue (net of royalty) having to be paid upfront to the government, private companies will find the risk-weighted returns skewed against them, especially in an era of low oil prices. The proposed fiscal model could also go against government revenue interests,  with windfall gains being reaped by a private company, in the event of the discovery and development of a giant oil/gas field by a private operator in a contract area where, because of its relatively unattractive geological prospectivity, modest fiscal terms were offered to the government,. We do not have to look very far for such instances: no one, at the outset, gave much of a chance for hydrocarbon discoveries in Bombay High and Rajasthan, two of India’s most prolific oil producing areas today.

The carrot of freedom to companies in pricing and marketing of gas is being dangled again before companies. Unfortunately, the same utopia was held out to companies as far back as the year 2000, when the first NELP contracts were signed. The Reliance imbroglio and the flip-flops on permitting companies to sell gas to whomever they wish at market price have left private companies sadder but none the wiser about government’s intentions. There will need to be clear policy moves, on the lines suggested by the Kelkar Committee, removing government control over pricing and marketing decisions on gas, so that private producers face no unpleasant surprises from subsequent governments.

The government offer notice for small fields also requires successful companies to compensate ONGC/OIL for past costs incurred on book value basis, adding another upfront payment by companies which will eat into their profit margins. At the present moment, it is not clear if the provisions of the Draft Revenue Sharing Contract (DRSC), which were circulated last year for comments, are going to apply to the present offer in toto. If they do, the entire bidding process, whether for small fields or exploration blocks, may well prove to be a non-starter. Penalising companies for failure to reach committed production levels goes against the very grain of best petroleum industry practice, given the uncertain behaviour of petroleum reservoirs. Requiring companies to channel all revenues, in the first instance, into an escrow account will delay revenue accruals to them; it will also affect their ability to raise funds from financial institutions, which will be uncertain about government payments in time to companies to enable them to meet their debt payment commitments. The provision for treating revenues earned from assignment of participating interest as liable for sharing with the government flies in the face of international oil industry principles: this will inhibit participation of small companies which hope to develop the reservoir and then sell their participating interest to larger companies which are better placed to exploit the reserves.

The absence of a contractual stability provision in the DRSC will raise apprehensions in private companies, given the government’s track record in compelling Vedanta to meet royalty payments at the time of approval of its acquisition of Cairn India’s interests. Nor is the bureaucratic footprint in approving decisions on field appraisal and development reduced in any significant manner. In fact, there is no bold departure at all from the past, with Petroleum Ministry bureaucrats and DGH officials continuing to have a major say in all aspects of operations of the contractor. Given the less than pleasant experience of companies with this system in the past, it would be highly optimistic to expect dynamic decision making aimed at cutting delays in giving approvals.

India, as a major petroleum importer, has very few major successes to show in the exploitation of its petroleum reserves over the past twenty five years. Such successes as have been there have been due to the efforts of private investors; the national oil companies have had virtually no significant petroleum discoveries to show for their exploration investments.  The Petroleum Ministry is now trying to paint the offer of small oilfields as an attractive bait to private investors when, by its own admission, these fields were not monetized by ONGC and OIL “due to their isolated location, limited reserves, high development cost, technological constraints and fiscal regime”. At a time when oil prices are on a downward path, marginal discoveries are unlikely to attract any significant private investment, all the more so if the contractual terms offered are less than appetising.

It all finally boils down to the comfort levels between investing companies and the government in doing business with one another. Viewing company motives with suspicion is not the best advertisement for encouraging private investment in a high-risk sector. Mexico’s recent experience in failing to enthuse private investors to bid for its shallow-water exploration blocks is a timely reminder of the consequences of low government credibility in the eyes of investors. Venezuela and Brazil are also paying the price for their past reluctance to engage with private oil companies. That such major producers face lukewarm investor response is a wake-up call to a far smaller player in the oil production market like India. Unless geologically attractive areas are offered, contractual terms meet investor expectations and the operating environment is efficient and hassle-free, petrodollars will not pour into India. As of now, the prognosis for private investment in the upstream oil and gas sector is, I am afraid, rather bleak.




Reducing Child Malnutrition – Four D(o)s for governments

Child malnutrition constitutes one of India’s biggest public health challenges. A look at international child nutrition rankings can be very sobering: India (with 44% of under-6 children underweight and 48% of under-6 children stunted) is in the same league as countries with far more pressing social, economic and political problems. The recently released Rapid Survey of Children carried out by the Ministry of Women & Child Development (MWCD), Government of India and UNICEF highlights the gap between better-performing and laggard states within India. The bulk of the poor performance on under-6 child nutrition (underweight and stunting) indicators is accounted for by just seven states: Bihar, Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh, Meghalaya and Uttar Pradesh. This is in spite of India having one of the oldest programmes (since 1975) – the Integrated Child Development Services (ICDS) – dedicated to improving maternal and child health and nutrition. The problem clearly does not lie in the intent: it lies in the inability of governments at the national and state levels to adopt a systems approach to tackling this issue. This blog argues that there are four must-dos for governments in India (all coincidentally starting with the letter D) which will hopefully contribute to significant reductions in child malnutrition. These are based on my personal experience with Maharashtra’s Rajmata Jijau Mother-Child Health & Nutrition Mission (“the Maharashtra Mission”) which I headed from 2005 to 2010 and from the heartening statistics which show that stunting and underweight in under-2 children in Maharashtra fell by 41% and 24% respectively between 2006 and 2012, attributable, at least in part, to a more focused approach of the Government of Maharashtra towards tackling child malnutrition.

Data & Disaggregation

Government systems are noticeably reluctant to use data, especially disaggregated data, to inform public policy direction and the ICDS is no exception. The MWCD receives monthly progress reports online from all state governments detailing inter alia the under-6 child underweight status (as per the WHO classification) on an ICDS project wise basis at the sub-district level. Unfortunately, this data often arrives after a considerable time-lag (when it does arrive at all) and there is no insistence on timely, accurate reporting. In any case, no use has been, or is, made of this rich source of data by governments at the national and state levels to focus attention on specific geographical areas where the incidence of child malnutrition is severe. In all development indicators, some regions in the country will lag well behind others. In child nutrition outcome indicators, too, it is observed that some regions in specific districts of the country, particularly those inhabited by tribal populations, minority communities and other socially disadvantaged groups show markedly poorer performance. There is also the issue of child coverage under the ICDS: despite the orders of the Supreme Court over ten years ago, a significant proportion of under-6 children still do not receive the full range of health and nutrition services. The decennial Census of India gives figures of children in the 0-6 age group right down to the village and urban ward level. Using these figures as the denominator for action, as the Maharashtra Mission did from 2005 onwards, enables inclusive coverage of all 0-6 children. Ensuring that each and every one of these children are regularly weighed gives comprehensive monthly data on the nutrition status of children in each habitation and enables taking of corrective nutrition and health measures in a timely manner. The availability of disaggregated data, including nutrition outcome indicators, draws the attention of policymakers to the worst affected areas and enables concentration of financial and human resources in those areas. More recently, Geographic Information System (GIS) tools like Jatak (see ) have been developed to track individual child nutrition status and take steps to improve the health and nutrition status of children. Using Interactive Voice Response Systems (IVRS), data on key child nutrition indicators are received from frontline nutrition workers as voice files and converted into data at a central facility. This data has a two-way flow: it goes downwards for initiation of timely action by field workers and also enables supervision of their activities by middle-level managers. Aggregated at sub-district and district levels, it also aids timely policy interventions.

Design & Delivery

As mentioned in the preceding section, the use of the latest census data on 0-6 child population allows firming up of the numbers of children to be covered by each anganwadi or a cluster of anganwadis in a revenue village or urban ward. The starting point has to be the provision of public health and nutrition services to the child based on an assessment of her nutrition status. Growth monitoring is one area where significant systemic weaknesses can be seen in nearly all states. Maintaining monthly weight records of under-6 children and monitoring their growth progress enables the anganwadi worker to refer children at risk to medical facilities for early treatment of childhood illnesses or congenital diseases. The focus in the ICDS system thus far has been only on under-6 child underweight status. However, extensive research has shown that stunting (height-related) and wasting (weight to height related) indicators are also crucial to the healthy development of the child. Till such time as government policy sanctions length/height measurement as an indicator, the appropriate strategy, as adopted by the Maharashtra Mission, would be to record the lengths/heights of all under-6 children listed as being severely (more than three standard deviations below normal) underweight as also of under-6 children with faltering growth patterns and determine children, especially in the under-2 age category, requiring urgent health and nutrition interventions to check severe acute malnutrition (SAM), which significantly increases infant and child mortality. This requires close coordination between the ICDS and health systems at village and health centre levels. The use of a system like Jatak would give an upto date list of severely underweight children and those displaying faltering growth patterns. The anganwadi worker would provide this list to the nearest health worker/ medical facility to record the lengths/heights of these children and determine those children failing in the SAM category. Such children would be admitted to medical facilities, with continued post-treatment monitoring by field workers at home subsequently. Children in the moderate acute malnutrition category can be attended to at the anganwadis or at home by anganwadi workers.

The focus on reducing moderate and severe underweight and wasting rates in under-6 children requires revamping of delivery systems in the ICDS sector through building up motivation, skills and knowledge in anganwadi workers, supervisors and Child Development Project Officers. The negative mentality of blaming field workers for high rates of child malnutrition has to give way to an appreciation of the severe constraints they operate under, moving, as the Maharashtra Mission termed it, from “a fault-finding to a fact-finding approach”. Anganwadi workers are paid a pittance (often after a delay of many months) for the devoted services they render to the community and are handicapped by a severe shortage of infrastructure and equipment essential to the effective performance of their duties, as well as voluminous reporting requirements and absence of on-the-job training. The awareness that they are contributing to the raising of the next generation needs to be imprinted in the minds of all ICDS functionaries. It is not that monetary incentives alone motivate people: non-monetary recognition, through an appreciation of work by those higher in the hierarchy and giving publicity to achievers, can be a major inspiration to workers. At the same time, senior officer levels in the ICDS need to take on team leadership – they should be available 24*7 for solving implementation problems and making available resources to frontline workers to enable them to give of their best. A large part of the Maharashtra Mission’s efforts went into establishing an easy rapport with ICDS staff, encouraging innovative approaches at their level, appreciating their efforts and resolving their operational and organizational problems with higher levels in the ICDS Commissioner’s office.

It’s not rocket science!

The above approach combines responsive governance with the intelligent use of data in a systematic, disciplined manner, adopting a standard operating protocol, which can yield rich dividends where improving child nutrition outcomes are concerned. Of course, there are very relevant issues like the nutrition and health status of adolescent girls, effective antenatal care for expecting mothers, behavioural changes in communities and families on issues of health, nutrition, education, sanitation and gender equality, not to mention the all-important aspect of tackling poverty and low incomes. Trying to tackle all these issues is beyond the capacity of any one agency or department, let alone the government; governments, corporates, nonprofits and civil society have to come together to evolve solutions to these problems. These will take time; till then, our emphasis has to be on the child, as poignantly penned by the poet Gabriela Mistral:

Many of the things we need can wait. The child cannot. Right now is the time his bones are being formed, his blood is being made and his senses are being developed. To him we cannot answer “Tomorrow”, his name is today.”