Harveer Singh 1

Revenue Sharing v/s Production Sharing Contract

Harveer Singh

Harveer Singh 2

Revenue Sharing v/s Production Sharing Contract

• India has inked 310 PSCs so far, and the government is fighting 22 arbitration cases.

• India adopted a more transparent and market-oriented regime for hydrocarbon exploration and production- Revenue Sharing (Cost Recovery Model).

• It would address the Goldplating Cost and Transfer Pricing.• The current production sharing contract (PSC) framework

allows for cost recovery by exploration and production (E&P) companies before they pay the government its share of revenue.

Harveer Singh 3

• The move is consistent with the observation of the CAG that the PSC “does not provide adequate incentives to private contractors to reduce capital expenditure”.

• The earlier contracts were based on the concept of profit sharing.

• Under the profit sharing methodology, it became necessary for the Government to scrutinize cost details of private participants and this led to many delays and disputes.

Harveer Singh 4

• India approved Nelp in 1997— it took effect in January 1999—to boost hydrocarbon exploration.

• Under Nelp, the government allocates rights to explore hydrocarbon blocks through a bidding process

• It has done this in nine phases so far for 360 blocks, with an investment of around $21.3 billion.

Harveer Singh 5

• “Some of the major issues/constraints in the existing PSC model are – i. Inadequate incentives for the operator to keep the cost

low. – ii. Require constant and micro monitoring by the

government... leading to procedural delays and arbitrations. – iii. Assessment of recoverable costs leads to dispute

between the government and contractor. – iv. Provide opportunity to operator to leverage/ manipulate

Investment Multiple in their favor based on which profit sharing is determined.”

Harveer Singh 6

Thank You.

• For any feedback/query/word of thanks, the Tutor can be contacted at harveersinh@gmail.com