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India to free oil, gas pricing from state control
April 16, 2013, 10:36 am

Expert says that state oil will account for 20 per cent of GDP in coming years in Brazil and Russia [Getty Images]

The finance minister wants a revenue-share model for oil and gas exploration [Getty Images]

India is considering freeing prices of locally produced oil and natural gas from state controls in a bid to lure more foreign investment, says India’s finance minister.

“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,” said Palaniappan Chidambaram.

He was addressing investors in Toronto yesterday as he started a tour of Canada and the US to woo foreign investment.

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.

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 the licence to explore.

Once government is guaranteed the highest share, it will rid itself of the current task of regulating the 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 Chakravarthi Rangarajan, chairman of the prime minister’s Economic Advisory Council.

This panel also suggested moving to market determined prices for natural gas in five years.

Source: Agencies