A cabinet paper on moving from a production sharing model for oil and gas to a revenue sharing model is under consideration, says FM
India is considering freeing prices of locally produced oil and natural gas from state controls in a bid to lure more foreign investment, Finance Minister P Chidambaram said here.
"We are at an advanced stage -- a Cabinet paper is under consideration on how to move from a production sharing model to revenue sharing model for oil and gas explored and excavated by companies," he told investors here yesterday as he started a tour of Canada and US to woo investors.
At present, India allows 100 per cent foreign direct investment (FDI) in exploration and production of oil and gas through a production sharing regime, wherein the companies get to recover all their investment before sharing profits with the government.
This regime has come in for criticism from official auditor CAG which feels it incentivises companies to keep raising capital cost so that government profit is postponed.
Under the new regime being contemplated, companies will be asked to bid for oil and gas they will share with the government from the very first day of output. Companies bidding for the highest share will get licence to explore.
Once government is guaranteed the highest share, it will rid itself of the current task of regulating price of gas.
Chidambaram said the government was keen on replacing the production-sharing model for oil and gas exploration with a revenue-share model.
The new model is based on recommendations of a panel headed by C Rangarajan, Chairman of Prime Minister's Economic Advisory Council. This panel had also suggested moving to a market determined prices for natural gas in five years.
For the intervening period, it suggested hybrid model of global benchmark gas price and imported LNG.
Overturning fears of foreign investors about fiscal deficit, Finance Minister P Chidambaram has said that India was committed to reducing its fiscal deficit and would achieve the target of 3 per cent in 2016-17.
He said: "India will reduce the fiscal deficit until we reach the target of 3 per cent in 2016-17 or perhaps a little earlier."
Chidambaram said the final reading of last year's fiscal deficit would come to below 5.3 per cent.
"When the actual numbers are out in the next couple of months, I'm confident it will probably be 5.1 per cent," he said.
He pointed to the stimulus measures taken by the government, after the 2008 global economic crisis had driven fiscal deficit and inflation "out of control".
"It appears that while the first stimulus package was necessary, the second stimulus package was doubtful and the third stimulus package was perhaps avoidable," Chidambaram said at a breakfast meeting organised by the Canada-India Business Council..
The minister said that India was on the path of fiscal consolidation.
"I said in the year 2012-13 I will bring fiscal deficit down to below 5.3 per cent, and going forward, I will reduce the fiscal deficit every year by 0.6 per cent until we have achieved the target of 3 per cent in 2016-17. I said these are red lines. I will not breach these red lines," the Minister added.