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Last week, a division Bench of the Gujarat High Court had directed ONGC to pay differences in royalty on crude oil within two months and henceforth, pay royalty to the Gujarat government at the market rate. Though ONGC Chairman Sudhir Vasudeva on Tuesday said the company would appeal to the Supreme Court against the high court’s decision, experts said the state was justified in seeking higher royalty, adding the fault lay with ambiguity in the Centre’s subsidy-sharing policy.
According to the Oil Field Act, oil producers have to pay 20 per cent royalty on the crude oil and natural gas they extract from on-land blocks to state governments. For offshore blocks, the royalty is payable to the Union government. Since the Centre has made ONGC and OIL share the subsidy burden of oil marketing companies (OMCs), the sale of crude oil to OMCs is at a discounted rate. This discounted rate is used by both OIL and ONGC to calculate royalty payments.
ONGC sells crude oil from its onshore blocks in Gujarat to Indian Oil Corporation’s Gujarat refinery. “Though the quantity is much less than what ONGC produces from offshore blocks, the highest discount on billing is in Gujarat, as IndianOil has the biggest share in subsidy,” former ONGC chairman R S Sharma told Business Standard. The company produces about six million tonnes of crude oil annually from Gujarat. It supplies crude oil from its offshore blocks to Hindustan Petroleum and Bharat Petroleum.
On Tuesday, ONGC said it couldn’t pay the levy on a price it hadn’t realised. “We have seen the judgment. We will certainly appeal against it (in the Supreme Court),” Vasudeva said on the sidelines of the eighth Asia Gas Partnership Summit here. “How can we pay royalty on a price we have not even realised?” he asked.
Sharma said though there was merit in the Gujarat government’s argument, ONGC should not be asked to bear the burden. Till 2004, when the burden-sharing mechanism was in place, ONGC paid royalty on gross billing. Sharma said the ministries of petroleum & natural gas and finance should arrive at a solution. “The issue has been precipitated. The state governments of Assam and Tamil Nadu, too, would seek similar higher royalty from ONGC and even OIL, if this is not sorted.”
In 2010-11, it paid Rs 3,652 crore to the Centre higher than Rs 3,489 crore to all the states. However, the trend reversed in 2011-12, when it paid Rs 3,614 crore to the Centre and Rs 6,164 crore to the states. In 2012-13, the royalty payment to the Centre was Rs 3,940 crore, but its payment to states rose to Rs 6,869 crore.
