"Time has come to revisit the oil cess issue. We want oil cess to be on an ad-valorem basis. I want this to be a win-win for all stakeholders so that the government revenue does not suffer greatly, at the same time the companies also not suffer much," the Petroleum Minister told reporters on the sidelines of an industry conference.
Currently, the oil exploration companies are charged 30 per cent cess or Rs 4,500 per tonne on crude. Since 2006, the government has linked crude prices and oil cess, which means as prices have always rising, the government has been regularly increasing the cess as well.
"We want the cess to be rational and ad valorem charged on a real-time basis. You can't have only duties static and only prices falling continuously," Ashar told reporters, adding that 30 per cent cess is very high and unacceptable in the given circumstances.
ONGC chief Dinesh K Saraf also said the company favours an ad valorem based cess, but did not elaborate.
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It can be noted that the two state-owned oil producers ONGC and Oil India, as well as private sector Cairn India have been asking the government to cut the cess on crude oil in the view of slump in prices.
The producers want the government to levy ad-valorem rate of cess which will result in higher payouts when prices are high and lower payout when rates fall.
Cairn has to pay the same cess for oil from the Rajasthan block.
The Oil Industry Development Act of 1974 provides for
collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverable from refineries and thus forms part of the production cost of crude. The cess was levied at Rs 60 per tone in July 1974 and subsequently revised from time to time.
It can be noted that during 2005-06, when crude prices rose from an average of USD 40 to USD 60 a barrel, cess was increased from Rs 1,800 to Rs 2,500 per tonne from March 1, 2006. Again, when crude rose to over USD 100 a barrel, the cess was jacked up to Rs 4,500 per tonne or USD 10 per barrel from March 17, 2012.
Crude has been hovering around USD 50 a barrel while the cess continues at the same rate as prevailing when crude oil was around USD 100 per barrel.
It can be noted that in the low oil price environment several countries, including the US, Britain, Colombia, Russia and China have changed their fiscal systems to increase production and promote investments.
Most crude oil produced in the country comes from pre-NELP and nomination blocks and is liable for payment of cess.
While the blocks under the new exploration licensing policy (NELP) like Reliance Industries' KG-D6 fields area are exempt from cess, the pre-NELP discovered blocks like Panna, Mukta, Tapti and Ravva pay a fixed rate of cess of Rs 900 per tonne.
"Petronet LNG is renegotiating gas buy deal and we expect the negotiations between Petronet and RasGas to conclude soon. I hope they will arrive at a win-win for both," he said.
On whether the country will increase import of Iranian crude, he said the current volume is about 10 mt per annum and that will continue.
On the Farzad-B block, the Minister said nothing has been finalised and the governments are still in talks.