Cairn not to share cess with ONGC

British company Cairn Energy has ruled out paying a cess on the crude oil produced at its discoveries in Rajasthan.

Cairn said the Rs 900 per tonne production cess should be borne by the public sector Oil and Natural Gas Corporation since it was the licensee of the Rajasthan block.

The block was given to Cairn outside the new exploration licensing policy and, therefore, production from it invites a cess to be paid to the state government. Exploration blocks under NELP do not invite the levy.

"We don't agree with the position that the tax should be shared between ONGC and Cairn in ratio of their shareholding. We believe it is ONGC's liability and we will defend ourselves against the tax," Cairn Energy director (exploration) Mike Watts told reporters on the sidelines of Petrotech 2005 conference.

He said that the company could head for arbitration in case the dispute continued.

The production sharing contract for the block does not say anything on cess though it makes ONGC liable to pay royalty on behalf of Cairn.

The petroleum ministry says the cess has to be shared between the partners in ratio of their shareholding. ONGC has 30 per cent and Cairn 70 per cent share in the block.

Watts said Cairn plans to produce 80,000 to 100,000 barrels of oil per day from its Mangala and Aishwariya fields in Rajasthan. "We are is finalising the development plan and hope to prepare it by year-end," he said.

The company plans to spend about $500 million on exploration in Rajasthan and has raised production targets at Mangala and Aishwariya oil fields there up to 100,000 barrels a day. The Mangala field is estimated to contain about 1 billion barrels of oil.