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Business opportunities in India

With an increase in the demand and supply for petroleum and natural gas products, and with multiple new players entering the market, the Indian government has enacted the Petroleum and Natural Gas Regulatory Board Act, 2006

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The entire gamut of exploration, production, refining, distribution and retail marketing in the oil & gas sector presents opportunities for FDI

FDI upto 100 % is permitted under automatic route in oil exploration in both small and medium sized fields subject to and under the policy of the government on private participation in (a) exploration of oil and (b) the discovered fields of national oil companies.

FDI upto 100 % is permitted under automatic route on petroleum product marketing. FDI for this segment would be subject to the existing sectoral policy and regulatory framework in the oil-marketing sector.

FDI upto 100 % is permitted under automatic route for petroleum product pipelines subject to and under the government policy and regulations thereof.

FDI upto 100 % is also permitted for Natural Gas/LNG Pipelines with prior government approval.

PETROLEUM AND NATURAL GAS SECTOR FOREIGN DIRECT INVESTMENT (FDI) POLICY

(In terms of Press Note No 4 (2006) Series dated 10.2.2006 of Department of Industrial Policy and Promotion, Ministry of Commerce and Industry)

Item

All activities other than refining and including market study and formulation, investment/financing, setting up infrastructure for marketing in Petroleum and Natural Gas Sector FDI up to 100%

Approval Route

Automatic

Special Condition

Subject to sectoral regulations issued by the Ministry of Petroleum and Natural Gas; and in case of actual trading and marketing of petroleum products, divestment of 26% equity in favour of Indian partner/public within 5 years.

Refining

FDI up to 26% in case of Public Sector Undertakings FDI up to 100% in case of private companies Through Foreign Investment Promotion Board (FIPB) Automatic Subject to Sectoral Policy

NOTE:

(a) As a general principle, if any parameter for approval through automatic route is not met,application should be made for consideration of FIPB.

(b) It may be noted that Press Note No 4 (2006 series) dated 10.2.2006 has permitted all transfer of shares from residents to non-residents, including acquisition of shares in an existing company, through the automatic route, subject to sectoral policy on FDI.

(c) Press Note No 4 (2006 series) dated 10.2.2006 has further permitted automatic route of bringing in FDI for all cases where activities earlier required industrial license as the proposed manufacturing activities required industrial license under Industries (Development and Regulation) Ac, 1951 because of location within 25 KM of Standard Urban Area limits of notified cities with more than I million population.

(d) In certain cases, irrespective of the level of investment and percentage of equity qualifying for automatic approval under sectoral norms, approval through automatic route is not available. These cases have been clarified in Press Note No 2 (2000 series) dated 11.2.2000, Press Note No. 1 (2005 Series) dated 12.1.2005, Press Note No 3(2005 series) dated 15.3.2005, and Press Note No 4 (2006 series) dated 10.2.2006 of the Secretariat of Industrial Assistance, Department of Industrial Policy and Promotion. The Press Notes may be referred at the website of Department of Industrial Policy and Promotion (Secretariat for Industrial Assistance),

(e ) The provisions pertinent for the Petroleum and Natural Gas sector as contained in the relevant Press Notes cited above are given below for guidance of the potential investors:

• In all such cases where the foreign investor has an existing joint venture or technology transfer/trademark agreement in the 'same' field, automatic approval is not available. The definition of ‘same’ field would be 4 digit National Industrial Classification (NIC) 1987 Code. The onus to provide requisite justification as also proof to the satisfaction of the Government that the new proposal would or would not in any way jeopardise the interests of the existing joint venture or echnology/trademark partner or other stakeholders would lie equally on the foreign investor /technology supplier and the Indian partner.

• It is advised that the joint venture agreement may embody a 'conflict of interest' clause to safeguard the interests of joint venture partners in the event of one of the partners desiring to set up another joint venture or a wholly owned subsidiary in the same field of economic activity.

• However, even in such cases where the foreign investor has a joint venture or technology transfer/trademark agreement in the 'same' field, the exceptions for

• requirement to obtain FIPB approval have been prescribed, which the investors may take note of:

(i) Investments to be made by Venture Capital Funds registered with the Security and Exchange Board of India (SEBI),

(ii) where in the existing joint venture, investment by either of the parties is less than 3%, and

(iii ) where the existing venture/collaboration is defunct or sick

(f) For details on modalities and procedures for obtaining approval for FDI (both through the automatic route.

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