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Link profit sharing with oil, gas output, avg price: PMEAC

Jan, 2, 2013 DHNS and Agencies:

 A committee headed by the Prime Minister's Economic Advisory Council Chairman C Rangarajan has recommended production-linked profit sharing of oil and gas operators with the government.

The committee has also recommended that an extended tax holiday of 10 years, as against seven years already available for all blocks under exploration.

The new mechanism will make explorers bid for percentage of output they can share with the government and the government’s share will go up with an increase in production as well as prices.

"Under the proposed model, production-sharing between the government and the contractor (of the auctioned oil and gas field) will be linked to average daily production and the prevailing average of oil and gas prices in a well-defined period," the committee said in the report on Wednesday.


The proportion of sharing should depend on the value of output per day and the price per unit of oil or gas, the report said.

Under the current mechanism, the explorer shares profit with the government only after recovering capital and operating expenditures.

The CAG had recently pointed out that the existing profit sharing mechanism has dented the government’s profits while giving benefits to explorers. Experts, however, said that acceptance of the recommendation would mean government mandating a price for gas.

They said that pricing based on demand and supply cannot be applicable to India, where fuel is in short supply. The Committee also said that the CAG's authority to audit expenses of an explorer is unquestionable.

"Audit is prerogative of CAG and so the power of audit remains with CAG," PMEAC Chairman C Rangarajan said after release of the report.

Recently Reliance Industries Ltd had argued that the CAG cannot do a performance audit of its flagship KG-D6 gas field.

CAD seen at 4.2%
The current account deficit is likely to be around the last year's level of 4.2 per cent of the GDP for 2012-13 fiscal, Prime Minister's Economic Advisor Council Chairman C Rangarajan said on Wednesday.

"I think CAD as a year whole in current fiscal may be in the same region as it was last year which was 4.2 per cent of GDP," Rangarajan said.

Current account deficit (CAD), which represents the difference between exports and imports after considering cash remittances and payment, widened to a record high of 5.4 per cent of GDP, or $22.3 billion, in July-September quarter.

"The export sector will be much better in the second half of the year (fiscal) than the first half," Rangarajan said.

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