ONGC, Rajasthan spar over Barmer royalty

After the "disagreement" over setting up a refinery in the state, the Rajasthan government and ONGC are at loggerheads over the quantum of royalty from the gigantic oil field in Barmer.

The Rajasthan government is opposing a move to almost halve the royalty payable to it by the Cairn-ONGC consortium, which owns the field.

"The central government wants to reduce the royalty to 12.5 per cent from 20 per cent. Our revenues will be severely hit and we cannot accept this," said a senior state official.

Under the production-sharing contract, ONGC has to pay 20 per cent revenue from the sale of crude oil as royalty. At 20 per cent, the state government would earn around $1 million (around Rs 4 crore) per day. This would make the refinery one of its main revenue source.

The field, in which Cairn India found India's largest crude oil reserves after ONGC's Bombay High discovery in 1972, was awarded to Cairn before the government introduced auction of oil blocks in 1999 under the New Exploration and Licensing Policy (Nelp).

Before Nelp, ONGC had the luxury of picking up stakes in the blocks, with the condition that it would accept the full royalty liability. So ONGC picked up a 30 per cent stake in the Rajasthan block.

"It has, however, raised a hue and cry over paying the full royalty, and wants to pay only 12.5 per cent, which is the norm for onland blocks auctioned under Nelp," said an official in the petroleum ministry.

The petroleum ministry has since issued a notification that royalty payable from pre-Nelp blocks will come down from 20 per cent to 12.5 per cent over the next five years. The quantum of royalty for onland blocks allotted under Nelp is 12.5 per cent.

The oil ministry official said the Rajasthan government was unlikely to accept ONGC's demand. "However, we are trying for some parity between pre-Nelp and Nelp blocks," the official added.

The oil field in Barmer has seen many controversies. The first one was the issue of evacuation of the field's "waxy" crude oil as ONGC found the proposal for setting up a refinery in the area to be economically unviable.

The consortium then applied for a special pre-heated pipeline to carry the crude to the Gujarat coast. The consortium wanted the cost of laying the pipeline, around $650 million, to be included in the field development cost (which is includable in the total costs).

Even as the permission for laying the pipeline has been granted, the consortium does not have a buyer because refiners are seeking heavy discounts as processing waxy crude oil is difficult.

The field is slated to produce 150,000 barrels at its peak. This could boost the country's oil output by about 20 per cent from the current 680,000 barrels a day. The Rajasthan basin is estimated to have 1 billion barrels of oil reserves.