In a significant reform, Government to end the practice of allocating customers to oil producing companies

1 Jul 2022 , 11:27 AM

The Union Cabinet has given domestic crude oil producers a thumbs up to sell their output to buyers of their choice in the country, effectively ending the government’s role in the allocation of crude to refiners and bringing more investment into the sector.

According to an official statement, the Cabinet Committee on Economic Affairs (CCEA) has approved the plan to end crude oil and condensate allocations on October 1.

It is worth noting that the latest decision is expected to benefit major crude oil producers such as the state-run Oil and Natural Gas Corporation (ONGC) and Oil India, as well as private sector majors such as Vedanta’s Cairn Oil and Gas.

Oil producers believe that the Centre allocation put a hole in their bargaining power with refiners. When crude is allocated to some distant refineries, transportation costs elevate.

Although the Cabinet granted these oil companies marketing freedom, they will not be permitted to export crude oil. Previously, companies were only permitted to sell crude oil to the government or its nominee or government companies under production sharing contracts (PSCs).

It further stated that the move would ensure marketing freedom for all exploration and production (E&P) companies. Government revenues, such as royalties and cess, will continue to be calculated uniformly across all contracts.

This move will help in increasing government revenue. This decision will entice a large number of national and international companies to conduct exploration and production in India, as per the sources.