Examine the shift from Production Sharing Contracts to Revenue Sharing Contracts in India's E&P sector and its implications for fiscal transparency and investor confidence.

Q. Examine the shift from Production Sharing Contracts to Revenue Sharing Contracts in India's E&P sector and its implications for fiscal transparency and investor confidence. (15 marks, 250-350 words)

Under Production Sharing Contracts (PSC), the government's take began only after the contractor recovered costs, making the state's revenue hostage to audited expenditure. The move to Revenue Sharing Contracts (RSC) — mainstreamed through HELP and now anchored in the Oilfields (Regulation and Development) Amendment Act, 2025 [2] — replaces cost verification with a share of gross revenue, a structural correction with mixed results.

Why the shift was made - Cost-recovery disputes under PSC bred gold-plating allegations and prolonged CAG-flagged litigation, delaying field development. - Administrative discretion: approving every cost item required heavy state scrutiny; RSC removes this by delinking government revenue from contractor spending [1]. - Accompanied by acreage liberalisation — over 99% of erstwhile "No-Go" areas opened, freeing roughly 1 million km² of the EEZ [1].

Implications for fiscal transparency - Government revenue is now computed from gross revenue at pre-declared slabs, a simple, auditable formula insulated from accounting judgment. - A uniform Empowered Committee of Secretaries (ECoS) standardises approvals across contract regimes, cutting discretionary delay [1]. - Limitation: gross-revenue sharing is regressive — it takes the same cut from a marginal deepwater well as from a prolific shallow field, and is blind to price crashes.

Implications for investor confidence - Bidding on revenue share plus freedom in marketing and pricing improves predictability, and PSU reorientation of ONGC and Oil India toward exploration signals intent [1]. - But high-risk acreage stays unattractive: a deepwater well costs USD 125–150 million, so RSC alone could not draw capital. - Hence Samudra Manthan (₹84,084 crore, approved 31 July 2026) adds up to 50% cost-sharing per deepwater well, capped at ₹675 crore — an implicit admission that risk-sharing, not just revenue-sharing, is needed [1].

The RSC shift has demonstrably improved transparency; its investment gap is being plugged by targeted fiscal support rather than a return to PSC. A calibrated, basin-specific revenue-share slab for ultra-deepwater acreage would complete the reform, aligning energy security with SDG-7's goal of affordable, secure energy.

(~330 words)

Sources: 1. Cabinet approves 'Samudra Manthan' – National Offshore Exploration Scheme with an outlay of ₹84,084 crore, PIB (1 August 2026) — RSC shift and reduced administrative discretion, No-Go area liberalisation and EEZ opening, ECoS framework, ONGC/Oil India reorientation, deepwater well cost, scheme outlay and 50%/₹675 crore cost-sharing 2. The Oilfields (Regulation and Development) Amendment Bill, 2024 — PRS Legislative Research — statutory basis of the amended oilfields regime, petroleum leases and decriminalisation