Rangarajan plan for profit sharing ready for Cabinet
The Rangarajan panel was asked to review the complex investment-multiple based profit sharing between the state and the contractor used in present contracts after it was criticised by the Comptroller and Auditor General of India (CAG) that it could be manipulated to delay the government’s share of profits reaching a higher level. “I don’t want disputes and controversies 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
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