Revenue Sharing

Suppose two partners open a shop, one puts in the money and effort to run it, and instead of splitting profit after arguing over every expense, they agree upfront that the second partner simply takes a fixed number of rupees out of every hundred rupees the shop earns, no questions asked about cost. That is the entire logic of the revenue sharing model India adopted for oil and gas from 2016 onward.

Under revenue sharing, the operator hands over an agreed percentage of gross revenue to the government from the very first rupee of sale, calculated on total revenue rather than on profit after costs. The percentage is not fixed nationally, it is an actual bidding parameter in an OALP or DSF auction, meaning companies compete partly by offering the government a higher revenue share in exchange for winning the block.

The appeal for the government is simplicity and faster, more predictable revenue. The appeal for companies is that they no longer need to defend every line item of expenditure to a regulator before any profit sharing kicks in, which was the biggest irritant of the older Production Sharing Contract regime. Revenue sharing is now the default commercial structure across OALP, DSF and most other Indian upstream contracts.