Higher oil profit share for states

Finance panel for states receiving half the Centre's share in profit petroleum

The Twelfth Finance Commission has recommended that state governments be given half the Centre's share in profit petroleum and gas available from blocks under the New Exploration and Licensing Policy (NELP).

Profit petroleum is the government's share from the sale of crude oil or natural gas recovered from fields once exploration and development costs have been recovered. The states will be given the share due to the rising importance of non-tax revenues.

Senior officials told Business Standard that this was broadly in line with what the petroleum ministry had recommended. The ministry had said states' share in profit petroleum should be 50 per cent to compensate them for reduced royalties.

States with oil and gas blocks under NELP get 12.5 per cent royalty for onland areas, 10 per cent for offshore and 5 per cent for deepwater. They were given 20 per cent in the pre-NELP blocks.

The finance ministry had referred the matter of states' share in profit petroleum to the Twelfth Finance Commission.

The government, under the four rounds of NELP, signed production sharing contracts (PSCs) for 90 exploration blocks. In addition, 26 exploration blocks were signed prior to NELP.

About 19 discoveries have so far been made in the Cambay onland, north East Coast and Krishna-Godvari deepwater areas under NELP. But none of them had so far started generating profits, said officials. The fifth round of NELP will be launched shortly.

Under the PSC for NELP blocks, profit petroleum is shared on the basis of the pre-tax investment multiple achieved.

Bidding for the blocks was based on the share offered to the government.

Companies under NELP also do not have to pay the Rs 1,800 a tonne cess to the government.

The story so far

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• The government, under the four rounds of NELP, signed production sharing contracts for 90 exploration blocks
• 26 exploration blocks were signed prior to NELP
• About 19 discoveries have so far been made
• None of them have so far started generating profits
• The fifth round of NELP will be launched shortly