New Delhi : An expert panel headed by Vijay Kelkar has recommended the current production sharing regime for oil and gas exploration over the revenue-sharing model that is being considered for the next round of auction, reports PTI.

The 10-member Committee, headed by former petroleum and finance secretary Kelkar, said the Production Sharing Contract (PSC) regime was more suited for Indian conditions rather than the revenue-sharing model based on the Rangarajan panel which was adopted by the previous UPA

Currently,  oil companies can recover all costs —— of successful and unsuccessful wells —— from sales of oil and gas before sharing profit with the government.

The Comptroller and Auditor General of India (CAG) had criticised this approach on grounds that it encourages companies to increase capital expenditure and delay the government’s share.

A panel headed by the then Prime Minister’s Economic Advisory Council Chairman C Rangarajan had last year suggested moving to a revenue-sharing regime that requires companies to state upfront the quantum of oil or gas they will share with the government from the first day of production.

The Kelkar Committee, which was last year formed to suggest ‘Roadmap for Reduction in Import Dependency in Hydrocarbon Sector by 2030’, in its final report said PSC model was more suited to attract investments.

“The Committee has reservations against accepting the ‘biddable’ Revenue Sharing Contract (RSC) model due to the inherently misaligned risk-return structure which leads either (i) to lower levels of production due to resultant reduced exploration efforts and lower recovery ratio, or (ii) to high windfall gains to operators encouraging contract instability due to political economy factors,” it said.

It suggested two fiscal regimes – PSC linked to investment multiple with modified contract administration including self-certification of costs by the contractors, or PSC with biddable supernormal profits tax.

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