ONGC to take Rs 2,500 crore hit in Q4 due to royalty payment made to Assam government

ONGC to take Rs 2,500 crore hit in Q4 due to royalty payment made to Assam government

A government official said the decision to pay the royalty was taken to settle the issue which occurred due to lack of transparency in policies.

The profits of state-run Oil and Natural Gas Corporation Ltd (ONGC) is likely to be hit in the fourth quarter of the current financial year as it will be take into account the Rs2,500 paid towards royalty to Assam government for the period February 2014 to June 2015. “Though the amount has already been paid, it was not accounted for, and will reflect in the fourth quarter of the financial year,” said an ONGC executive.

However, he said the company will not be affected in any way for the payments to be made by the central government to Gujarat and Assam governments towards royalty on crude for the period between 2008-1014. The centre has recently undertaken to pay ONGC’s outstanding liability of Rs 8,392 crore to Gujarat government in two instalments – 15% in 2016-17 and 85% in 2017-18 towards differences in royalty of crude extracted. It has also agreed to pay ONGC’s and Oil India Ltd’s (OIL) royalty dues of over Rs 6,323 crore to the Assam government in three instalments – 15% in 2016-17 and 45% in 2017-18 and 40% in 2018-19. While ONGC is liable to pay Rs 1,350 crore royalty dues to the north-east state, OIL is supposed to cough up Rs 4,973 crore.

A government official said the decision to pay the royalty was taken to settle the issue which occurred due to lack of transparency in policies. “The modalities of how the payments will be made will be discussed internally,” said the official.

Being the producer of oil, 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. The sources said since the two upstream oil PSUs had given discounts to marketing companies under government directives, the government has taken the view that the budren of extra royalty under a Supreme Court order must not fall on them. The payment to be made by the central government is towards differences in royalty of crude the PSUs have extracted from specified onshore blocks since April 2008.

However, the Rs2,500 crore payment was made by ONGC as part of its current dues to the state governments as the apex court had earlier directed it to pay royalty at pre-discount rate (in comparison to market rate) from February 1, 2014- June 2015.

The decision to take over 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.

The Gujarat state government in 2011 moved the HC stating that it should be paid royalty at market rate and the difference in royalty payment since 2008 at pre-discount rate (in comparison to market rate) was computed at Rs 8,500 crore. It further said that ONGC, at times, provided crude to IOC at a huge discount of 96% and this resulted in huge downfall in royalty payment to the state. ONGC had challenged the move in the apex court.

While the PSU paid such royalty to the Gujarat government but the Union government in 2003 issued a letter that the burden of less recovery of the petroleum products be shared by all the stake holders and not by OMCs only and the upstream companies including the ONGC were directed to give discount in the prices on sale of crude oil to the OMCs. Accordingly, ONGC was asked to provide crude to Indian Oil Corporation Ltd (IOC) as burden-sharing mechanism at a discounted rate as the latter was offering subsidies on diesel, kerosene and Liquefied Petroleum Gas (LPG) to consumers, resulting in huge losses to the latter.

https://www.financialexpress.com/industry/ongc-to-take-rs-2500-crore-hit-in-q4-due-to-royalty-payment-made-to-assam-government/561230/