Rangarajan for $8 gas, production-linked payments

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SummaryThe Rangarajan committee on gas pricing and petroleum profit-sharing has recommended a near doubling of domestic natural gas price from $4.2 per unit besides sweeping changes in the way profits from oil and gas fields are shared with the government in the future.

definitely improve the bottomline of not only RIL, but also of ONGC and Oil India. It will also increase the earnings per share of these companies,” said Kalpana Jain, senior director, Deloitte.

The Rangarajan panel also recommended replacing the existing profit-sharing formula based on the level of investment made and revenue earned from a field with a production-based-payment scale for future contracts. Hen production or price goes up, the exchequer stands to earn more. In future auctions, winners of oil and gas blocks will continue to be selected based on the existing weight given for bidders' technical capability, committed exploration work and the profit-sharing package. However, the profit-splitting formula will be different. The panel has suggested production-based payments to the government, which will be different for onland and off-shore fields of different geological complexities. The proposed model is expected to eliminate disputes related to cost recovery of the contractor, such as the one that is currently ongoing between RIL and the oil ministry.

The panel also suggested that contractors be allowed to continue exploration work throughout the mining lease period unlike the current scheme of allowing exploration only during the assigned period. Conducting exploration after the stipulated time by some of the producers was criticised by the CAG in his last performance audit of oil and gas blocks.

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