Cairn takes govt to court on Barmer contract extension

Union government officials have been saying that the PSC term would be extended with some conditions

Cairn India, the country’s largest oil producer from the private sector, has filed a case in the Delhi High Court seeking speedy decision by the government on extension for production sharing contract (PSC). The Vedanta group company operates India’s largest onshore oil discovery in Rajasthan’s Barmer district.

“Cairn India has approached the Delhi High Court, seeking early decisions on the extension of its production sharing contract for its Rajasthan block (RJ-ON-90/1) and fair price for its crude. Both these matters are pending with the government,” the company stated after market hours on Friday. Union government officials have been saying the tenure of the PSCs would be extended with some conditions.

A senior official close to the development expressed surprise at the company’s action. “There was no need for the company to approach the court. There has been no inaction or lull on the part of the government in pursuing Cairn’s demand for extension. In fact, there was no issue as the contract is valid for five more years,” he told Business Standard.

He added Cairn’s action comes on the backdrop of a continuing process of discussion with the government that involved data sharing with DGH and the approval of the Field Development Plan (FDP) of Raageshwari Deep Gas, part of the Barmer block.

Under the terms of the contract, if there are prospects for gas production, the PSC could be extended by 10 years; else only for five years. “Cairn has a PSC expiring in 2020. The government of India has offered an extension of 10 years on condition that Cairn increase its share of revenue to the Centre,” Rajasthan Chief Secretary C S Rajan had recently said. The decision for extension has to come from the Union ministry of petroleum and natural gas.

“This time around, this is a much less risky proposition because now oil reserves have already been located. With lower risk of investment this time, Cairn should be willing to part with the higher share of profit to the government of India,” Rajan had said on the sidelines of the Resurgent Rajasthan Partnership Summit last month. At present, the government’s profit ranges from 25 per cent to 60 per cent; in case of Cairn’s Rajasthan block, it is 50 per cent.

A committee headed by the directorate general of hydrocarbons on the policy for extension to the PSCs for small, medium-sized and discovered fields awarded to private firms in the 1990s has recommended 10-year extension on revised terms and conditions.

The panel recommended contracts be extended for 10 years for both oil & gas fields or the remaining economic life of the field, whichever is earlier.