Rajasthan against shifting Cairn 'delivery point'

The Rajasthan government has written a letter to the Centre objecting to a recommendation to shift the "delivery point" of Cairn-ONGC's crude oil from the wellhead in the state to the Gujarat coast saying it would result in a loss of tax revenue for the state.

A committee of secretaries has recommended shifting the delivery point "" or the point at which the crude is sold "" from the oilfields in Rajasthan to improve the cost recovery of the $600 million (Rs 2,400 crore) heated pipeline to be laid jointly by Cairn India, the subsidiary of Edinburgh-based Cairn Energy that operates the oil field, and Oil and Natural Gas Corporation (ONGC), its 30 per cent partner in the field.

Selling crude at a coastal delivery point rather than at the well-head will enable the pipeline costs to be factored into the selling price.

"We are worried that central sales tax on the crude oil will not be levied in Rajasthan but in Gujarat if the delivery point shifts there. This will significantly dent our tax revenues," said a senior official in the Rajasthan government.

The state is set to earn around $1 million a day in taxes and royalties from the field once crude oil production begins in mid-2009, making the field one of the largest revenue earners for the state.

The field, in which Cairn found India's largest crude oil reserves after ONGC's Bombay High discovery in 1972, is set to produce 150,000 barrels per day of crude oil. The waxy crude from Barmer, however, requires a heated pipeline for transport.

Meanwhile, the petroleum ministry has written to the department of revenue seeking a clarification on whether shifting the delivery point of the crude oil would cause tax revenues to fall for Rajasthan.

"We want to make sure there is no windfall income for Gujarat and no undue revenue loss to Rajasthan," a senior petroleum ministry official said.

Cairn has already sought advice from auditing and consulting firm PricewaterhouseCoopers, which has found that central sales tax on the crude oil, levied at 4 per cent can be collected by Rajasthan itself, the oil ministry official said.