A panel of ministers on corruption has asked the government to create an independent regulator for oil and gas fields, brushing aside strong objections from the petroleum ministry, which currently enjoys regulatory powers. A Group of Ministers (GoM) has proposed that the new regulator should take over critical functions of the Directorate General of Hydrocarbons (DGH), which reports to the oil ministry and is its technical arm for issues involving oil and gas exploration and production contracts. The DGH is currently under the scanner of investigative agencies over allegations of malpractices by the former head of the body, VK Sibal, for his dealing with a company dealing with data. The Comptroller and Auditor General has criticised the DGH and the oil ministry for their handling of the contracts with private companies including Reliance Industries.

“The GoM has asked an inter-ministerial group under the Department of Economic Affairs in the finance ministry to study international best practices and identify the functions that could be hived off to the upstream regulator,” a senior government official close to the development said. The proposal, cleared by the GoM, would be forwarded to Prime Minister Manmohan Singh’s office for action. The oil ministry has opposed the creation of a separate upstream regulator and argued that policies such as the New Exploration Licensing Policy and Coal-Based Methane already provided a level playing field to all companies.

The recommendation for a new upstream regulator was made to the GoM by the Committee on Allocation of Natural Resources that was asked to suggest a cleanup act in critical sectors like oil, gas, spectrum and land. The panel, chaired by former finance secretary Ashok Chawla, had raised serious concerns about the functioning of the DGH.

The GoM has accepted several recommendations of the committee. These include clear separation of the roles of the policy-maker (the oil ministry), the regulator and the operator. The committee had argued that the current system of overseeing oil and gas blocks with the help of a Management Committee was opaque, prone to manipulation and did not appear to be independent.

The GoM also accepted the Chawla Committee’s suggestion that decisions of the Management Committee as well as their rationale should be made public – a practice already followed by regulators in Norway.

The committee also asked the government to shut the ‘revolving door’ that allows oil industry executives to work at the Directorate General of Hydrocarbons on deputation and go back to their firms. For instance, former DGH Sibal was on deputation from state-run Oil India Limited, where he returned after his tenure.

Taking exception to the panel’s recommendations for a new regulator, Oil Secretary GC Chaturvedi had submitted a dissent note in the Chawla committee report. When the GoM referred the committee’s report to a Committee of Secretaries (CoS) under Cabinet Secretary Ajit Seth, the ministry stuck to its stand that a separate independent regulator is not required for the upstream sector. The CoS had suggested that an inter-ministerial group identify functions that can be hived off to the proposed regulator.

The oil ministry had argued that the DGH is its technical arm and monitors the upstream sector like government agencies with technical monitoring functions in several other countries.

The Chawla committee had, in fact, asked that the DGH be reconstituted as an independent technical office attached to the ministry for transparent contract administration.

The DGH’s future role would also be examined by the finance ministry-led group, since some of its functions will shift to the upstream regulator.

The government’s Integrated Energy Policy has noted that the upstream regulation done by the DGH was “neither independent nor comprehensive in a technical sense” and the “current arrangement needs to be strengthened and made independent.

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