Stake transfers in oil fields to NRIs to come under FEMA: RBI

The Reserve Bank has notified that all transfer of stake or interest in an oil and gas field to non-residents will be treated as FDI and will have to be reported under Foreign  Exchange Management Act (FEMA).

At present, 100 per cent foreign direct investment (FDI) is permitted in exploration and production of oil and gas under automatic route, requiring no prior approval.

But now even cases like UK's BP Plc buying 30 per cent interest in 23 oil and gas blocks of Reliance Industries for USD 7.2 billion, would be treated as FDI for the purpose of reporting under FEMA.

"It has now been decided, in consultation with the government, to treat the issue/transfer of 'participating interest/rights' in oil fields to a non-resident as FDI transaction under the extant FDI policy and the Foreign Exchange Management Act (FEMA regulations)," the RBI said in a notification.

It said that such transactions will have to be reported as FDI transactions under provisions of FEMA.

Transfer or sale of stake or participating interest in an oil field like Reliance's KG-D6

is permitted under present rules. Since 100 per cent FDI under automatic route is permitted in exploration and production, the transfer to non-residents was not covered under FEMA reporting rules.

As per the FEMA regulations, transfer of equity shares or fully and mandatorily convertible debentures or convertible preference shares of an Indian company, from a resident to a foreigner or vice-versa has to be reported to an authorised dealer bank within 60 days of transactions.

Further, the receipt of consideration for issue of shares of an Indian company to a non-resident has to be reported to the RBI though such a bank within 30 days of the transaction.

This will also entail reporting the transfer of participating interest/rights under the "other" category in the FC-TRS declaration form.

The RBI said that necessary amendments to the FEMA will be notified separately for facilitating the new changes.

Reliance had earlier this year sold 30 per cent interest in its 23 oil and gas blocks, including the showpiece eastern offshore KG-D6 fields, to Europe's second-largest energy firm BP Plc for USD 7.2 billion.

This is the single largest foreign investment in the country.