Production sharing contract: an analysis

Abstract

For achieving energy security and self-sufficiency, it is important that a country has an efficient and effective mechanism for exploration and production of energy resources. With this very purpose in mind, the Production sharing contract was introduced in India after the liberalization of economy. In Production Sharing contract the state is the owner of the resources who engages a private contractor for exploration and development activities. The risk is borne by the contractor who is at the risk of losing investment in absence of any commercial discover. On the other hand, if there is a discovery made then the contractor is entitled to profit oil and cost oil. The Production Sharing Contract as compared to Concession Agreement is that the ownership of the natural resources lies with the contractor. This ambitious policy was expected to revolutionize the energy sector, however, over the years the failures of PSC have often overshadowed the sparse achievements that it has had. Other than introducing foreign investments, the PSC has not done much and the KG-D6 basin controversy finally put a stamp on its ineffectiveness. With the struggling Indian economy, the stifling growth of the oil and gas sector and the ever increasing rise in oil prices, it is important to revise the existing policy and laws and revive this industry. Thus, the very purpose of this dissertation is to analyse the production sharing contract and its related aspects and to discuss its failures and successes with a aim to suggesting improvements in the existing regime.