Rangarajan panel to make sweeping changes to PSCs

The Rangarajan committee's report on poduction sharing contracts (PSC) is expected within a month. Sources say the panel is likely to make sweeping changes for future PSCs, reports CNBC-TV18's Nayantara Rai.

The panel believes the concept of cost recovery is the mother of all issues facing the upstream sector and wants to do away with it completely. This panel considers the concept of ‘cost recovery’ to be the main reason behind the crippling decision making process.
Therefore, the panel is likely to do away with cost recovery, and companies will no longer have to get government approvals for annual capex etc. Simultaneously, the DGH and oil ministry will have more time to concentrate on maximising exploration instead of getting bogged down by micro-managing the company’s costs and investments.
The new model is likely to also change the parameters for calculating the government's share of profit from petroleum. It may also suggest doing away with the parameter of pre-tax investments and in its place recommend the parameters based on price and production. The panel feels this will allow the government to also have a bigger share of windfall profits in case of a big discovery or a sudden spike in crude prices.