BackOil and gas: Govt to weigh options on contract mode
Petroleum minister indicates no final view yet; CCEA to decide on Rangarajan, Kelkar recommendations
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New Delhi: The government is yet to decide whether to stick to an existing production-sharing agreement with oil and gas explorers or move to a new revenue-sharing one, with support emerging for both proposals.
Explorers want the existing contract to continue.
The cabinet committee on economic affairs will decide on the matter within a fortnight.
Mint reported on Saturday that a committee led by former finance secretary Vijay Kelkar had recommended the continuation of the present production-sharing contract (PSC) framework that allows explorers to recover their costs before they pay the government its share.
That recommendation went against another, made previously by another high-level panel headed by C. Rangarajan, who heads the Prime Minister’s Economic Advisory Council, that India move to a revenue-sharing regime and abandon the existing production-sharing contract.
The ministries of finance and petroleum seem inclined to move to a revenue-sharing arrangement.
The decision by the cabinet is expected within the fortnight, but the oil ministry has already offered, on Sunday, 46 hydrocarbon blocks on the revenue sharing model under the 10th round of the New Exploration Licensing Policy (Nelp).
India’s petroleum minister M. Veerappa Moily seemed to indicate that nothing was, as yet, final.
“We have to take a view. We have already moved the note for consultation (of the cabinet). Kelkar has given a report. The idea is to attract investors. We will evaluate and then take a considered decision."
The current contract has come under scrutiny because of the possibility of it encouraging explorers to gold-plate their costs, an allegation made by the government’s auditor after its review of the costs of Reliance Industries Ltd’s (RIL’s) offshore gas block in the Krishna Godavari basin.
An RIL spokesperson declined comment on the ongoing deliberations in the government.
A petroleum ministry official said, speaking on condition of anonymity, that “revenue sharing is the way ahead". He added that the current production-sharing contract had affected the case for exploration in India and that the finance ministry was also in favour of a revenue sharing model.
“The blocks under the Nelp-10 rounds are on the revenue sharing model. We have already floated a cabinet note for the same. At this stage, I don’t think this will be changed. (But) we have to take view of the Kelkar report," Union petroleum secretary Vivek Rae said.
“The finance minister in his speech has already talked about a revenue-sharing model. Let’s see what happens," Rae added.
A finance ministry spokesperson said the matter is confidential and his ministry’s views would be communicated to the oil ministry and presented before the cabinet as and when required.
Finance minister P. Chidambaram had earlier said that the government was keen on replacing the production-sharing model with a revenue-sharing one.
Nelp was approved by the government in 1997—the first auction was in January 1999—in an effort to boost hydrocarbon exploration in the country. Under Nelp, the government allocates rights to explore hydrocarbon blocks through a bidding process and has done this in nine phases so far for 360 blocks, with an investment of around $21.3 billion.
Mint reported on Saturday the Kelkar panel’s assertion that there was little incentive for investors to “gold plate" costs or go for “wilful under-production" under the current contract.
The Kelkar panel’s recommendations are significant as they come in the backdrop of allegations levelled by the Comptroller and Auditor
General, that oil and gas companies use the contract to gold-plate costs, resulting in loss of revenue to the exchequer.
Hydrocarbon explorers in India have made a total payment of $15.41 billion to the Union government as royalties, cess and so-called profit petroleum. They have also paid out $1.93 billion to state governments since 1994.
India is the world’s fourth-largest energy-consuming nation, trailing the US, China and Russia, and imports 70% of its crude oil and 30% of its natural gas requirements. It imports around 35% of its primary energy needs, accounting for 4.4% of global energy consumption.
“The Kelkar report has already been rejected by the government’s representative who has given his dissent note," added the petroleum ministry official quoted above.
Rajiv Nayan Choubey, director general of hydrocarbons, who is also the member secretary to the panel, in his dissent note expressed reservations about the recommendations made by the panel on the appropriate contract on the grounds that the matter was not within the committee’s ambit.
“It is thus clear that it is not within the mandate of this Committee to give its recommendations about the appropriate E&P (exploration and production) contract because that work has already been done by the Rangarajan Committee after a very elaborate exercise involving all the stakeholders," Choubey said in his dissent note, which Mint has reviewed.
Asit Ranjan Mishra contributed to this story.
utpal.b@livemint.com
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