The new policy is also likely to result in simplification of calculating government share, which will help developers make bids in a prudent manner as the biddable parameters are likely to be the revenue share of the government, according to a report by rating agency India Ratings.
The new methodology, the report said, though simplifies the basis of calculation of the government share, would place a greater risk on developers as they will have to estimate three key variables in advance before placing a bid, exploration, development and production (EDP) costs, quantum of hydrocarbon extractable and market prices.
On pricing, the report expects the market-linked prices to be closer to the lower of the spot or term liquefied natural gas landed prices, which should be 1.5-2 times the current domestic gas price of USD 4.66/mmbtu.
Volume offtake at these prices should not pose a challenge and gas is likely to see demand from fertiliser, refinery and city gas sectors, the report noted.
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Under the existing policy, exploration and development costs are pass-through and first recoverable for developers and under PSC, government's profit share rises gradually till ED costs are recovered.
As per the existing PSC, developers like Reliance have been accused of gold-plating of costs (by the CAG and the Oil Ministry), as government's profit share is calculated post-cost recovery by the developer on ED.
These discoveries could not be monetised earlier due to reasons such as isolated locations, small size of reserves, high development costs, technological constraints, fiscal regime etc.