In a bid to avoid a recurrence of the recent controversies over the government's production sharing contracts (PSCs) with leading oil companies such as Reliance Industries and Vedanta-led Cairn India, there is a strong possibility that the government scraps the process and instead asks firms to bid for the share of oil and gas that they can offer to the Centre.

Under existing PSCs, such as the one RIL signed for KG-D6 in 2000, firms are allowed to recover all costs before the government gets its share of profit.

This system, sources said, had come in for sharp criticism from even the comptroller and auditor general (CAG) who said it incentivised companies to go on investing in oil and gas fields.

"We have found it difficult (to manage) the issue of cost recovery," said RN Choubey, director general of hydrocarbons (DGH).