India considering freeing oil, gas price controls: Chidambaram

Finance Minister P Chidambaram
Finance Minister P Chidambaram

TORONTO: India is considering freeing prices of locally produced oil and natural gas from state controls in a bid to lure more foreign investment, Finance Minister P Chidambaram said here.

“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,” he told investors here as he started a tour of Canada and US to woo investors.
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.

This regime has come in for criticism from official auditor Comptroller and Auditor General which feels it incentivises companies to keep raising capital cost so that government profit is postponed.

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 license to explore.

Once government is guaranteed the highest share, it will rid itself of the current task of regulating 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 C Rangarajan, Chairman of Prime Minister’s Economic Advisory Council. This panel had also suggested moving to a market determined prices for natural gas in five years.
For the intervening period, it suggested hybrid model of global benchmark gas price and imported LNG.

Earlier, at a breakfast meeting organized by the Canada-India Business Council, he allayed fears of foreign investors about fiscal deficit. He said that India was committed to reducing its fiscal deficit and would achieve the target of 3 per cent in 2016-17. “India will reduce the fiscal deficit until we reach the target of 3 per cent in 2016-17 or perhaps a little earlier,” he added.

Chidambaram said the final reading of last year’s fiscal deficit would come to below 5.3 per cent.
Referring to bilateral trade and investment between the countries, Chidambaram said that while imports and exports were roughly matched in both directions (with total trade approaching over USD 5 billion in 2012 as against USD 4 billion in 2010), the same was not true for bilateral direct investment.

Over 100 top executives of Canadian companies, Nirmal Verma, Indian High Commissioner to Canada; Stephen Beck, Canadian High Commissioner to India; and top officials of Finance Ministry and banking sector attended the meeting.-PTI

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