Production Sharing Contract

Also called: PSC · Topic: Infrastructure: Transport, Communications and Energy · NCERT: Beyond NCERT

Meaning

A Production Sharing Contract (PSC) is an agreement between the government and a company to explore for and produce oil or gas in a block (an assigned area). The company takes the risk and pays for exploration and development. When oil or gas is sold, the company first takes back its spending. This is called cost recovery. The rest is called profit petroleum, and the government and the company share it in agreed proportions. India used PSCs for blocks given out under the New Exploration Licensing Policy (NELP), whose first round was held in 1999–2000. PSCs matter because their accounting is complex. Arguments over how much cost to recover and how big the government's share should be have led to long, costly disputes.

Example

The Ravva oil and gas field in the Krishna-Godavari basin was developed under a PSC signed in October 1994. The government claimed that an arbitral tribunal had cut its share of profit petroleum by about $99 million. The tribunal's final award came in 2016, and the government was still fighting its enforcement in 2026.

Don't confuse with

• Revenue Sharing Contract (used under HELP/OALP): the government takes a share of revenue from the first sale. There is no cost recovery, so the government does not need to check the company's costs.
• Concession agreement (in infrastructure PPPs): it gives a private party the right to build or run a public asset and collect user charges for a fixed period. It does not split the output produced.

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• Infrastructure: Transport, Communications and Energy