Kelkar panel opposes revenue-sharing model for deep sea blocks

In significant recommendations, the high-level Vijay Kelkar Committee has favoured the current production sharing regime for high-risk deep sea oil and gas exploration over the revenue-sharing model that is being considered for the next round of auction.

The Kelkar Committee submitted the first of its two-part report on a road map to enhance domestic oil and gas output to Oil Minister M Veerappa Moily this week.

While the first part of the report deals with ‘Quick Fixes’ such as shifting to an open acreage regime, setting up a data repository, administering signed contracts and strengthening the Directorate General of Hydrocarbons (DGH), the second part covers pricing and taxation.

Part two of the report is expected to be submitted next month, sources briefed on the matter said.

The Committee, under economist Vijay Kelkar, favoured the production sharing model for deep sea exploration because guarantees for the recovery of all sunk costs are important to attract oil majors with proprietary technology, sources said.

Under the present regime, 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 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.

Taking cues from the suggestion, the Oil Ministry proposed to auction at least 56 blocks for exploration in the next licensing round by asking bidders to quote the amount of oil or gas output they will share with the government.

Sources said the Kelkar panel favours the revenue—sharing model for shallow and onland blocks that are less cost intensive than deep sea exploration.

It also calls for moving to an open acreage regime where companies can pick exploration areas through the year rather than wait for periodic auctions that offer areas identified by the government.

To facilitate this, the panel has called for setting up a National Data Repository (NDR) that will preserve and promote the country’s natural resources data.

Sources said the Committee also suggested administering Production Sharing Contracts (PSC) without any changes and strengthening the DGH for better administration.