A committee headed by C Rangarajan will review terms of the contract that oil & gas companies sign with the government, after a controversy betweenReliance Industries and the oil ministry over declining KG-D6 output highlighted the need for a change in the clauses.
Top government officials
told ET the Prime Minister's Office has taken the lead in the initiative, realising the need for a robust contract that will reduce messy disputes and attract more foreign investment in the critical sector.
Headed by C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, the committee will seek to rewrite some of the terms in the production sharing contracts (PSCs) and will not affect agreements that have already been signed, two people with knowledge of the matter said. The decision, they added, was taken after meetings between Prime Minister Manmohan Singh and Oil Minister Jaipal Reddy last week.
The PSCs were first drafted under the New Exploration Licensing Policy (NELP) in 1997. They provide a framework under which private companies can recover their development costs or capital expenditure from oil & gas revenues after which the profits are shared with the government as per a specific formula.
The trigger for the current review appears to be the ongoing spat between Reliance Industries and the oil ministry over declining production and cost recovery for the private player from KG-D6, the country's biggest gas field.
The ministry, which is trying to fight off accusations of favouritism towards Reliance Industries, issued a notice to the company earlier this month for not fulfilling obligations and failing repeatedly to meet targets, factors which it said caused considerable losses to the government. The notice imposed a penalty of Rs. 6,600 crore on RIL. The ministry also struck down Reliance's proposal to recover $1.2 billion in costs incurred on the D6 field, saying the company had drilled fewer wells than originally committed. (curtsey : economic times)
Rupesh Yatesh Dalal
Head Research Department
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