More trouble is brewing for the next round of exploration acreage auction, with more companies and investment bankers expressing nervousness over political pressure on the government to renege on contractual commitment to allow market-pricing of oil/gas from new finds.

The latest to join the chorus on the issue is British major BP (formerly British Petroleum). The TOI had on July 10 first reported that Chevron, Niko, BG (British Gas) and Hardy had written to the government expressing apprehensions over the government reneging on the terms of contracts due to political interference. Such views among global majors will hit efforts to attract investments during the coming auction.

In a letter to oil minister Murli Deora, BP's India head Ashok K Jhawar says, "Were the government to consider the reintroduction of some form of administered pricing for natural gas, we would be concerned since, as a long-term investor in India, of primary importance to us is fiscal stability for the life of our contract''.

"Subsidies in energy pricing should come at the consumer end, not at the exploration end, otherwise experience shows that countries which set an unrealistic well head price of gas suffer from lack of exploration and development since investment tend to flow to higher-price locations."

Even investment bankers are getting jittery over demands from Andhra CM YSR Reddy and state-owned entities that will require the government to renege on contractual commitments. " Investor nervousness increases when government arms like NTPC and a chief minister, who is from the same party ruling the Centre, challenge existing law and policies," a Singapore-based investment banker said on condition of anonymity.

Though oil/gas is a Central subject, Reddy has rejected market-pricing for gas from Reliance Industries' find off his state's shores and is pressuring the PM for preferential pricing and first right of use. NTPC, which has dragged Reliance to court on the liability clause of a gas sale agreement, is also asking the government to take its share of profit in kind. A panel of secretaries is now grappling to form a gas pricing policy, which could undo the benefits of auctioning acreages.

"Investors are not worried about court battles. But when ruling party voices oppose a policy (acreage auction) that had been put in place by Parliament and received wide support from parties that rule today as well as those in the opposition, it signals a politically risky situation to be pumping money," the investment banker said.

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