Rangarajan plan for profit sharing ready for Cabinet

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SummaryPetroleum minister Veerapa Moily has prepared a Cabinet note, recommending a new formula suggested by the Rangarajan panel to split profits between the exchequer and fuel producers from oil and gas blocks to be awarded in the future to avoid disputes over timely payment of the state’s share of profits.

arising out of interpretation problems in cost recovery based exploration as had happened in past,” Moily said.

The CAG criticised the existing formula as it was possible for companies to “front-end” expenditure so that the ‘investment multiple’ (which indicates how capital-intensive a project is in relation to revenue from hydrocarbon sale) is kept low to avoid the government’s revenue share going up. In the case of Reliance Industries operated KG D6 block, the government and the company got embroiled in a dispute as gas production levels declined despite an enhancement in capital investment. The oil ministry under Jaipal Reddy moved to recover over $1 billion from the company by disallowing cost recovery. The dispute delayed approval for RIL’s exploration of certain satellite fields as consent for more spending would only further delay the government’s profit share inching up if production did not dramatically increase.

“I want to upgrade the exploration policy on CBM to possibly make it on revenue share basis as in gas exploration. I will also come out soon with a shale gas policy which incentivises big investments,” the minister said.

The ministry intends to carve out shale blocks and hold roadshows for the auction before the end of this year. It has broadly identified blocks in basins such as Cambay, Assam-Arakan, Gondawana, KG onshore, Cauvery onshore and the Indo-Gangetic basins.

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