India might not be well endowed in hydrocarbon reserves but the government’s push for the oil and gas exploration sector over the past two decades ensured that around Rs 9,650 crore flowed into its kitty during 2009-10 as non-tax revenue from the exploration companies.
The revenue which came in the form of royalty, profit petroleum and exploration licence fee rose marginally from Rs 9,423 crore in 2008-09, despite a fall of over 16 per cent in the imported crude parity price. At the beginning of 2009-10, the petroleum sector was estimated to give the government Rs 7,333.76 crore.
A senior official in the petroleum ministry said the government earned about Rs 3,900 crore from royalty and cess, Rs 5,700 crore from profit petroleum and about Rs 50 crore from licence fee from the exploration sector during 2009-10.
Royalty paid on production of crude oil is calculated on an ad-valorem (percentage) basis and, therefore, volatility in international prices impact government revenue. The benchmark Indian crude basket averaged $83.57 a barrel in 2008-09, a year which saw the international oil prices touching the historical high of $147 a barrel. The benchmark price though fell to $69.76 last year. The government’s non-tax revenue from the exploration sector increased primarily because of production from the MA and D6 fields of Reliance Industries Ltd in the Krishna-Godavari basin and Cairn India’s Mangala field in the Barmer district of Rajasthan. Besides, Oil and Natural Gas Corporation, Oil India Ltd and Gujarat State Petroleum Corporation contribute a major chunk to the non-tax revenue from the petroleum sector.
The Union government is entitled to royalty on oil and gas produced from the offshore fields whereas the state governments get royalty from onshore fields. Royalty payable by the national oil companies from the nominated fields vary from that for production from the fields that are governed by production-sharing contracts (PSCs) entered under the pre-New Exploration and Licensing Policy (Nelp) and Nelp.
Royalty for nominated fields works out to be 16.7 per cent. In the case of pre-Nelp fields, it varies from Rs 481-528 a tonne. The difference between the 12.5 per cent royalty rate and the fixed royalty is paid up from funds of the Oil Industry Development Board.
Under the Nelp regime, royalty for ‘onland’ areas is 12.5 per cent for crude oil and 10 per cent for natural gas. For shallow water offshore areas, royalty is 10 per cent, while for deepwater offshore royalty is 5 per cent for the first seven years of commercial production and 10 per cent subsequently.
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The licence fee that is paid to the government for carrying out exploration in a particular area is payable to the Union government in the case of offshore fields and to the state governments in the case of onshore fields. Cess at the rate of Rs 2,500 per tonne is levied on production from nominated and pre-Nelp fields.
Explaining the broad difference in the payment, the official said: “While government-controlled companies pay cess and royalty on production from the nominated fields, companies that produce from pre-Nelp fields pay cess, royalty and profit petroleum. In the case of Nelp fields, companies pay profit petroleum and royalty.”
The official said that currently three fields — RIL’s MA field producing crude oil and D6 field producing natural gas, and a GSPC field — pay profit petroleum under the Nelp regime.
Profit petroleum is the value of petroleum produced from a particular field after deducting the admissible cost of production according to PSCs.
The money that accrues to the government as its share in profit petroleum is low in the initial years of production and rises in later years since the companies are allowed higher cost recovery in earlier phase.