Ranga panel report on future oil and gas contracts likely this week

Tags: News
The prime minister-appointed Rangarajan committee may this week suggest sweeping changes in future oil and gas contracts by asking explorers to bid for a percentage of output they would share with the government.

Sources said the panel may ask the government to move to a production-linked payment regime where explorers will be required to bid for the government share of production after royalty. The firm offering the maximum would win a block or area.

The new contractual system would overcome the logjam created by the existing model based on the cost recovery mechanism, wher­ein explorers are first allowed to recover their entire investment before sharing profits from oil or gas production with the government. This system had been criticised by the comptroller and auditor general (CAG), which said it encourages operators to keep increasing cost so that government take is deferred.

Sources said the committee felt that in the existing production sharing contract (PSC) system with liberal cost recovery provisions, the government take comes at a relatively later stage of production with the government bearing a major production of the 'cost risks’during the project lifecycle.

In many cases with the creative use of costs and investments by the operators, the profit petroleum and associated economic rent to the government may be delayed; it felt adding in the new model this may be addressed since revenue-sharing of hydrocarbons would commence with the onset of production in the field.

Also, the new model would ensure the sharing by the government of the economic rents arising in the form of windfall profits in the event of a hydrocarbon price surge or a geological surprise by way of a huge find.

The panel was appointed to suggest changes in existing oil and gas exploration contracts with energy firms to minimise monitoring of expenditure, fix system to determine domestically produced natural gas price and modify existing profit-sharing mechanism, which, as per national auditor, favou­red private energy firms.

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