Centre to pay Rs 14,715 cr royalty owned by ONGC, IOC to Gujarat, Assam

Centre to pay Rs 14,715 cr royalty owned by ONGC, IOC to Gujarat, Assam

The central government will pay two state-owned oil exploration companies’ outstanding liabilities of over R14,715 crore directly to the Gujarat and Assam governments.

The central government will pay two state-owned oil exploration companies’ outstanding liabilities of over R14,715 crore directly to the Gujarat and Assam governments. The amount is towards differences in royalty of crude PSUs extracted from specified onshore blocks since April 2008. While the the ministry of petroleum and natural gas will pay ONGC’s total outstanding liability of R8,392 crore in two instalments — 15% in 2016-17 and 85% in 2017-18 — to Gujarat towards differences in royalty of crude extracted, it has also undertaken to pay ONGC’s and Oil India’s (OIL) royalty dues of over R6,323 crore to Assam in three instalments — 15% in 2016-17, 45% in 2017-18 and 40% in 2018-19. While ONGC is liable to pay R1,350 crore royalty dues to the north-east state, OIL is supposed to cough up R4,973 crore. The Assam matter is coming up for hearing on Tuesday.

The decision to takeover the liability of public sector oil companies was taken after an agreement was arrived at between the petroleum ministry ONGC, OIL, and the two state governments in two different meetings on Friday.
Being the producer of oil, companies are obliged under the Oilfields (Regulation and Development) Act, 1948, to pay 20% royalty of the market value of crude oil it extracts from oil blocks to the state governments. A bench headed by justice J Chelameswar while disposing of the ONGC’s appeal against the Gujarat HC’s judgment accepted the amicable settlement arrived at between the three parties to the dispute. As of now, ONGC has paid part of its current dues to Gujarat as the SC had earlier directed it to pay royalty at a pre-discount rate (in comparison to market rate) from February 1, 2014.

Any payment already made by to the state by ONGC based on court orders shall not be reopened and will not be reopened and will not be reimbursed or paid by the government. All other mutual claims and liabilities shall be extinguished on the basis of this agreement,” according to the minutes of the meeting held on Friday.

Additional solicitor general Tushar Mehta, appearing for ONGC, told the SC the settlement is not contrary to the Constitution as the dispute involves only Gujarat. Senior counsel KK Venugopal, appearing for Gujarat, said it doesnot have any objection to the proposal.

ONGC had challenged the HC’s November 30, 2014, order that asked it to pay towards the alleged “shortfall of royalty for the period April 2008 onwards” within two months and also pay royalty, henceforth, to the state government at market price. ONGC had earlier argued that the oil companies were making huge losses and thus can not pay the royalty. “Oil being a major mineral is subject to Union control. The Centre can abolish any royalty or fix any payment for royalty as considered appropriate by legislature… no state government can challenge the quantum of certain royalty after shifting to ad-valorem basis,” ONGC had stated in its appeal.

Opposing the ONGC’s stand, Gujarat had said it has the right to earn revenue from its property and can’t be made to suffer by being asked to bear the burden of losses by ONGC. The state in 2011 moved the HC stating that it should be paid royalty at market rate and the difference in royalty payment since 2008 at a pre-discount rate (in comparison to market rate) was computed at R8,500 crore. It also said ONGC, at times, provided crude to IOC at a discount of 96%, resulting in a huge downfall in royalty payment to the state.

While the PSU paid such royalty to Gujarat but the Centre in 2003 said the burden of less recovery of petroleum products be shared by all the stakeholders and not by OMCs only, and the upstream companies, including ONGC, were directed to give discount in the prices on sale of crude to OMCs. Accordingly, ONGC was asked to provide crude to IOC as burden-sharing mechanism at a discounted rate as the latter was offering subsidies on diesel, kerosene and LPG to consumers, resulting in huge losses to the latter.

Initially, ONGC paid royalty on the full wellhead price during 2003-08. However, the Centre withdrew the instructions on May 23, 2008. Since ONGC started providing crude to IOC at a discounted rate, it started paying royalty to the state at a post-discount rate, resulting in a drastic cut in royalty to Gujarat.

http://www.financialexpress.com/economy/centre-to-pay-rs-14715-cr-royalty-owned-by-ongc-ioc-to-gujarat-assam/559949/

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