Government will auction 69 idle oil and gas fields of state-owned ONGC and Oil India to private firms on a new revenue sharing model and liberalised terms including pricing and marketing freedom.
The 69 small and marginal fields holding 89 million tonne of oil and gas resources, worth Rs 70,000 crore at current rates, will be given to explorers offering the maximum revenue from hydrocarbon produced to the government.
“This is a paradigm shift from the controversial production sharing contract (PSC) and cost recovery model to a more equitable revenue sharing model that protects government interest in both low oil and high oil price scenarios,” oil minister Dharmendra Pradhansaid.
Bidders will be asked to quote the revenue they will share with the government at low and high end of price and production band to capture windfall of steep rise in prices as well as quantum jump in production.
“We are committed to our Prime Minister’s moto of minimum government, maximum governance. The new model will ensure that there is least government interference in the operations while also providing a fiscal and policy regime that encourages investments,” he said.
The government will allow companies to sell oil as well as natural gas produced from these fields at market price and with no restriction on who they sell the produce to.
While oil is priced at global benchmark currently, a complex international hub based formula determines gas price, which is roughly half of the rate at which India imports gas.
Pradhan said the Cabinet on Wednesday approved auctioning of the fields that state-owned firms have surrendered because they were uneconomical due to size, geography and state-set low sale prices.
The new revenue sharing regime, which Pradhan hinted will also be followed in the next licensing round, will replace the PSC model where oil and gas blocks are awarded to those firms which show they will do maximum work. All their investments can then be recovered from sale of oil and gas before sharing profits with the government.
This model was criticised by CAG which said it encouraged companies to keep raising cost so as to postpone higher share of profits to the government.