Amidst raging controversy over fall in output from Reliance Industries' KG-D6 gas fields, the government has appointed a committee headed by C Rangarajan to review terms of contracts signed by companies to explore and produce oil and gas.
New Delhi: Amidst raging controversy over fall in output from Reliance Industries' KG-D6 gas fields, the government has appointed a committee headed by C Rangarajan to review terms of contracts signed by companies to explore and produce oil and gas.
The panel will "review" existing production sharing contracts (PSC) like the one signed with RIL for KG-D6 fields, "in respect of the current profit-sharing mechanism with the Pre-Tax Investment Multiple (PTIM) as the base parameter and recommend necessary modification for the future PSCs," an official press statement said here.
Headed by C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, the committee would seek to rewrite some of the terms in the PSCs signed for exploration and production of oil and gas, and will not affect agreements that have already been signed.
Current PSCs, signed under the New Exploration Licensing Policy (NELP) of 1999, provide for private companies to recover all of their capital and operating expenditure from oil and gas revenues after which the profits are shared with the government as per a specific formula.
However, this model has come in for criticism with a sharp dip in output from RIL's eastern offshore KG-D6 fields. RIL has already recovered most of its investment from revenues earned from sale of natural gas even as output fell short of the targets.
Oil ministry now wants to punish RIL by imposing a penalty for not drilling committed number of wells but finds its hands tied in absence of a specific provision in the signed PSC linking cost recovery to production.
The Rangarajan Committee has also been asked to suggest "structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas, and for monitoring actual price fixation".
It has also been tasked to explore "various contract models with a view to minimise monitoring of expenditure of the contractor without compromising, firstly, on the hydrocarbons output across time and, secondly, on the Government's take".
Besides recommending suitable governmental mechanism to monitor and audit of government's share of profit petroleum, it would also recommend "asuitable mechanism for managing the contract implementation of PSCs which is being handled at present by the representation of regulator/government nominee appointed to the Management Committee".
"The Committee will submit its recommendations by August 31," the release added.