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Richa Mishra

The conclusion of the study is drawn from an analysis of some 61 countries, of which 29 countries operate production sharing contracts similar to that in India.

New Delhi , Sept. 17

A MAJORITY of the countries that operate the production sharing contracts prefers their share of profit gas to be supplied in `kind.' This is besides the royalty applicable for such share of gas.

A study conducted by GAIL (India) Ltd has revealed, "with the exception of those countries that are not having adequate gas utilisation facilities (roughly 15 per cent), the Governments of the rest of countries operating through production sharing contracts (PSCs) require that their profit gas share is supplied in kind in addition to payment of royalty." GAIL had conducted the study to ascertain the international trend of allocation of the share of gas resulting from PSC between the host government of a country and independent oil companies involved in exploration and production (E&P) of the country's oil and gas reserves.

The conclusion of the study is drawn from an analysis of some 61 countries, of which 29 countries operate PSC similar to that in India.

Among the countries using PSC, with the exception of four countries, rest of the 25 countries were found to realise or have the right to realise their share of profit gas in kind, and also in cases the royalties in kind as well.

Legal right on gas: The main reason as perceived by the Government for taking its share in kind is to acquire the right on the gas by legal means to freely use it in meeting the country's economic development. There did not appear to exist any major exception to this principle.

To allow appropriation of Government's share of the gas any differently other than in kind would have defeated the very purpose for which these countries entered into PSC in the first place, the study said.

According to a senior GAIL executive, the scope of the study was to analyse the method of sharing the production volume of gas and the revenues arising from their sale between the host Government and the oil company. "The analysis was aimed to see whether a conclusion on a method which is preferred by a majority of the countries could be reached so that this could provide a basis for deriving India's policy for realisation of Government's share of gas under Indian PSC system," the executive said.

The contracts: Although gas PSCs are more recent than the PSCs dealing in oil, there are a number of similarities between the way production of oil and gas both in volume and revenues arising from their disposal are shared between the host Government and the oil companies. In the gas sector, a Government's share of profit gas has been received in kind and has been applied to fulfil the Government's economic development plan. Limitation in gas transportation out of the national boundary has been a major factor in the decision to make domestic use of gas, to a large extent, controlled by the host Government except where it is produced under concession scheme based on tax and royalty.

In the concession-based exploration and production, the Government receives no share of profit in kind, but the charges are received in cash.

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