Govt nods royalty payment to states on crude oil production

The government today agreed to pay states like Gujarat and Assam, from its annual budget, the difference between royalty paid by operators of some oil fields as per their contract and actual prevailing rate.
Operators of some 28 fields in Gujarat, Assam and Arunachal Pradesh pay royalty on crude oil they produce at the cap rate mentioned in Production Sharing Contract (PSC) dating back to 1990s.
These rates were capped at Rs 450 per tonne as against the current rate of 12.5 per cent of the price of oil.
To protect state revenues, the difference between the two was made good by the Oil Industry Development Board (OIDB) funds.

The Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Narendra Modi, today agreed the proposal to pay the differential royalty from the budgetary allocation for 2015-16.
The outgo on this account in the current fiscal would be Rs 56 crore, an official statement said.

CCEA "approved the proposal for payment of differential royalty -- the difference between the rates of royalty as per provisions contained in respective PSCs and the notified rate of royalty on crude oil production -- to concerned state governments in respect of 28 discovered fields, which were awarded by the government to different companies during the years 1994-95, 2001 and 2004," it said.

States to benefit will be Arunachal Pradesh, Assam and Gujarat. "The payment shall be through budgetary allocation instead of through Oil Industry Development Board (OIDB) fund from the year 2015-16 onwards," it said.
Acceptance of the proposal would mean that while the outflow from OIDB will be reduced accordingly, government outgo from the Budget would be Rs 56 crore in the current fiscal.
The royalty differential to be paid to Arunchal Pradesh would be Rs 30 crore and that to Gujarat Rs 26 crore assuming average crude oil price of USD 50 per barrel and foreign exchange rate of Rs 60 to a dollar.

While Arunachal Pradesh has been included in the scheme, it would not get any benefit this fiscal as there is no producing oil field in the state currently.
At present, state governments are getting royalty based on the Oilfields (Regulation & Development) Act, 1948 and Petroleum & Natural Gas Rules, 1959 and the differential royalty (difference between the royalty rates as per PSC and the notified rate of royalty on crude oil production) is being paid by OIDB.
"The Standing Committee on Petroleum & Natural Gas, while examining the functioning of OIDB, recommended that differential royalty to the concerned state government may be made through budgetary allocation, in order to ensure proper utilisation of OIDB fund," the statement said.

OIDB funds are supposed to be utilised for financing development activities of the sector.