Centre plans to review Production Sharing Contract

Govt wants to clarify the extent to which producers will have the freedom to market the gas

Going in tandem with the Rangarajan committee report, the Economic Survey has said that the government is reviewing the production sharing contract (PSC) to clarify the extent to which producers will have the freedom to market the gas.

The survey, tabled today in Parliament, said, “Pricing of gas is presently done under the New Exploration Licensing Policy (NELP). The government provides the operator freedom to sell the gas produced from the NELP blocks at a market-determined price, subject to the approval of pricing formula.

The government is reviewing pricing under the production sharing contract (PSC) to clarify the extent to which producers will have the freedom to market the gas.”
Currently, natural gas producers supply gas to users identified by the government at a price fixed by the government.

At present, PSCs provide for gas being sold at an arms-length price reached via market bids invited from potential users. The Prime Minister-appointed Rangarajan Committee had in January also mooted the idea of reviewing the PSC regime.

The Economic Survey has also batted for aligning domestic energy prices with the global prices, specially when large imports are involved.  

The report added that at microeconomic level, underpricing of energy to the consumer not only reduces the incentive for being energy efficient, it also creates fiscal imbalances.
Admissibility of subsidized number of liquefied petroleum gas (LPG) cylinders and prices of LPG have also recently been revised.