Discarding 'cost recovery' model to hit exploration and production: Vijay Kelkar

NEW DELHI: Vijay Kelkar, the man who initiated many reforms and shaped policies as petroleum secretary in the mid-nineties, has urged the government to put on hold changes in the fiscal regime for oil firms as recommended by a panel headed by C Rangarajan, a key aide of the prime minister.

Kelkar, who is again involved in the oil sector as chairman of the recently appointed panel on energy security, has opposed the Rangarajan Committee's recommendation to do away with the system of "cost recovery" in which companies that discover oil or gas can recover the development cost from hydrocarbon sales before sharing anything with the government.

In contrast, the Rangarajan Committee, which was appointed on the recommendation of former oil minister Jaipal Reddy, wants to abandon the cost-recovery system, which is the main cause of conflict between the Comptroller and Auditor General ( CAG) and private firms such as Reliance Industries.

The panel, whose recommendation was endorsed by finance minister P Chidambaram in the budget speech, said: "Since cost recovery is at the root of the problems experienced, it is proposed to dispense with it, in favour of sharing of the overall revenues of the contractor, without setting off any costs," the Rangarajan panel said in its report.

The director general of hydrocarbons, RN Choubey, wants the government to implement the recommendations of the Rangarajan panel, in which he was involved as secretary.

Oil minister Veerappa Moily said Kelkar had written to the government. "We have received a letter from Dr Kelkar to expand the committee's terms of reference and other matters. We will take a view," he told ET.

Kelkar has argued that Indian sedimentary basins are not as prolific as blocks in the Gulf region and they can't attract investors without lucrative financial concessions.




"Our preliminary assessment is that such a switch will discourage E&P ( exploration and production) activities and thus will be detrimental to achieving the objective of enhancing oil and gas production from conventional and unconventional energy sources," Kelkar said in the letter.

Recently, Moily had set up a committee under Kelkar to suggest roadmap for enhancing domestic oil and gas production and substantially reduce import dependency by 2030.

The first meeting of the committee took place on Mar 13, where Director General of Hydrocarbons RN Choubey opposed Kelkar saying that the committee cannot challenge recommendations of the Rangarajan panel, committee members present in the meeting said. Choubey did not respond to ET's email query. The next meeting of the committee is scheduled on April 9.