Chawla committe finds fault with Production Sharing Contract (PSC)

Chawla committee notes the fault line is the PSC between operator RIL and Government.The relationship between the pre-tax investment multiple (PTIM) and the share of contractor profit petroleum changes dramatically once the PTIM crosses 2.5, with the government's share increasing from 28 per cent to 85 per cent. There is thus an incentive for bidder higher PTIM in the bid but work towards lower in actual.
Source: Economic Times

CAG questions enhanced capital expenditure of RIL

What is this controversy about?


Government is the owner and RIL is the contractor of KG gas.Government gets its share of revenue after deduction expenditure of the operator, the higher the expenses lower will be plus to share. RIL claimed increase in capital expenditure from $2.4 billio to $8.8 billion DG Hydrocarbons and Minsitry approved the same between September and December 2006. Analysts were puzzled with this claim as there was no corresponding increase in out put, which plateaued (for D6 block) at 55mmscmd as against production target of 80mmscmd.   

The draft CAG report makes three significant charges:

• First, that the Government gave RIL and Cairn unjustified deadline extensions for the completion of exploration, ranging from three months to 12 months at a time.
• Second, the Government allowed RIL and Cairn to retain unexplored contract areas which ought to have been returned to the Government, and re-auctioned, after a given (in the contract) point in time.
• Third, RIL inflated its capital expenditure requirements by 117 per cent between 2004 and 2006, which cost the Government revenue.

Source: India Today