This article has been published by the Economic Times – Energy World at Amendments to upstream legal framework will bolster investor confidence but much depends on rules to be framed.

On 3^rd December, 2024 the Rajya Sabha passed, the Oilfields (Regulation and Development) Amendment bill, 2024 aimed to bring about notable changes to the regulatory framework for the upstream industry in India.

With the twin objectives of ensuring policy stability and promote ease of doing business, the requirement for applying twice to the Govt. for a license or lease has been deleted by adding a new definition of “petroleum lease” which will be applicable for both exploration and development.

The bill also intends to introduce a stabilization provision for the leases which states that terms of leases will not be varied during their term to the disadvantage of investors.

Further, by expanding the definition of “mineral oil” to include all sorts of petroleum hydrocarbons, the Government is endeavoring to provide legislative clarity on the treatment of the increasing coal bed methane and shale investments which has been officially brought under the purview of the act.

The rule making power of government has also been expanded, which hints at promoting arbitration including seats of such mechanism being both inside and outside India. This step is likely to be welcomed by foreign players in the sector who prefer foreign seated arbitrations.

In line with decriminalization of various laws being undertaken by the government to foster investments, the penalties for contravention have been limited to pecuniary consequences. For adjudication of offences, there will be a special authority not below the rank of Joint Secretary and appeals against their decision will go to Appellate Tribunal of Electricity.

The upstream sector requires huge investments. Inputs are deterministic but the outcome is probabilistic. A sound legal framework ensures certainty for investors. India is only able to meet 13% of its oil demand indigenously. India’s energy demands could be greatly offset from domestic production.

The Amendment indeed aims to promote investments for domestic production. However, oil and gas blocks are spread across various Indian states. States may have a concern with the unitary shift of powers in the context of leases potentially affecting revenues through royalties. There has been a history of constitutional tensions on this matter, as oil and gas are classified under the Union List, while state governments retain legislative powers over certain natural resources vital for the extraction and operation of oil and gas blocks. These include ‘Land’, ‘Water’, and ‘Gas and Gas Works’. The future success of the regulatory framework will largely depend on how rules under the amended Act are formulated. It is critical that these rules be comprehensive and explicitly address all relevant matters to prevent any overlap with state legislative powers.