The Ministry of Petroleum & Natural Gas is in a fix as members of the Vijay Kelkar committee have not arrived at a consensus on the fiscal regime — the revenue-share model — to be followed for contracts in the oil and gas exploration and production (E&P) business.
The Kelkar panel was set up to prepare a roadmap for enhancing domestic oil and gas production and sustainable reduction in imports by 2030. The first part of the report, dealing with economic foundations of exploration and production contracts, was submitted recently. In the report, the Kelkar committee has endorsed the current system of production sharing contracts (PSC), which allow for cost recovery wherein a contracting firm first recovers its expenditure before sharing profit with the Government.
However, the Director General of Hydrocarbons and another industry expert, who are members of the Committee, have given a dissent note. The DGH is in favour of a production-linked payment system, which is said to be more transparent, and less interventionist in routine exploration and production activities. Clarity on the fiscal regime is crucial as the 10{+t}{+h} edition of the licensing round (New Exploration Licensing Policy X) is to be launched shortly.
The option before the Ministry is to go ahead with the recommendations of the C. Rangarajan panel that has proposed the shift in regime (production-linked) in its report on the PSC mechanism . A senior Petroleum Ministry official said that the Ministry had already moved an inter-ministerial note favouring the Rangarajan panel’s recommendations.
Though a shift in regime may not directly result in more revenue for the Government, it will ensure that as the contractor earns more, the Government gets a progressively higher share . Besides, it will also safeguard the Government’s interest in case of windfall gains arising from a price surge or a surprise geological find. Rangarajanhad argued that scrutiny by the Government was perceived by contractors as interference in commercial decision-making, whereas the Government viewed it as legitimate and necessary.
Industry opposes shift The industry has been opposing the proposed shift in fiscal regime on the grounds that it is a disincentive for the sector, particularly deepwater exploration. Even the geological knowledge of the (oil and gas) acreages here is low, resulting in high risks, an executive from an exploration company said.