KOLKATA (miningweekly.com) – The Indian government is having second thoughts on continuing with revenue sharing agreements in contracts with successful bidders at the auction of oil and natural gas fields.
While no decision has been taken yet, a section within the government is backing reverting to an earlier regime allocating oil and natural gas fields to investors linked to their exploration commitments made at the time of submission of bids.
The government policy advisory body, National Institute for Transformation of India Commission (NITI Aayog) through a committee set up to review auction of oil and natural gas blocks and contracts between the government and successful bidder, has come out in favour of scrapping revenue sharing contracts and bids should be assessed based on an exploration programme submitted by bidders.
Bid assessment parameters will include elements such as acreage to be brought under seismic survey, drilling programme and progress of exploration work. The NITI Aayog committee, in its recommendations, stated that, “no revenue or production sharing other than payment of statutory levies and royalties should be part of the contract with successful bidders”.
However, the committee felt that future contracts need to take into account windfall gains from any allocated oil or natural gas field allocated to an investor. Hence, it suggested that contracts incorporate thresholds of revenue generation such that should revenues exceed $2.5-billion a year, the investor will need to pay the government 50% of incremental revenue generated above the $2.5-billion a year.
The government two years ago shifted from production sharing agreements to revenue sharing contracts. The former was abandoned as it entailed government monitoring of capital investment by asset developers and the offsetting of capital costs involved in the development of the asset, while it was felt that gross revenue sharing would ensure a simpler contract.
The committee also noted that revenue sharing had been opposed by most industry players when it was incorporated two years ago.