Oil and Natural Gas Corporation (ONGC) wants to exit Cairn India's prolific Rajasthan oilfields as it has found the project economically unviable due to the government levies that it will have to bear.
As per licence conditions for the Rajasthan block, ONGC has the right to take 30 per cent in any discovery without any cost but the state-run firm has to pay not only its share of royalty but also the 70 per cent share of the operator.
ONGC last month wrote to the Petroleum Ministry saying it wants to "relinquish" its 30 per cent interest in the block RJ-ON-90/1 unless the government reimburses the royalty it has to pay on behalf of Cairn, a senior company official said.
"Royalty of 20 per cent has to be paid to the government on the price Rajasthan crude may get. At $40 a barrel, the royalty for 6 million tonnes a year of average output works out to $352 million (Rs 1,760 crore)," he said.
ONGC has to bear 30 per cent of the $2.4 billion cost of developing the fields and pay more than three times its share of $105 million royalty. Also Cairn wants ONGC to pay even its share of Rs 2,500 per tonne cess levied on crude oil (Rs 15,000 crore annually).
"The project with these levies does not make economic sense to us," he said, adding ONGC wants Cairn to reimburse all the investment it has put in with a reasonable rate of return.
If the company relinquishes its share, Cairn's shareholding will rise from 70 per cent to 100 per cent.
The board of ONGC has held back clearance to the revised development cost of the Rajasthan fields proposed by Cairn, the official said.
"Our board wants more information from Cairn on doubling of the development cost to $2.4 billion," he said, adding that this cost was excluding the $900 million cost for laying a pipeline from Barmer district in Rajasthan to the Gujarat coast for transporting the crude to users.
A Group of Ministers and a Committee of Secretaries had 11 years ago recommended that ONGC should be reimbursed the royalty it has to bear for the operator but the recommendation is yet to be accepted.
"We have told them (the government) that either reimburse us the royalty or free us from the field," he said.
On cess, ONGC feels both partners have to bear it in proportion to their shareholding. Its stand has been backed by the Law Ministry as well as by the Petroleum Ministry but Cairn insists that it has no liability for paying any of these statutory levies.
"If ONGC is to bear the cess, we will have to pay an additional Rs 1,500 crore per annum," the official said.
Cairn is almost ready to start producing crude oil from the Rajasthan field. The output may start by this month end and is slated to reach a peak of 8.75 million tonnes by 2011.
