Exit won't relieve ONGC of its levy burden on Rajasthan crude

NEW DELHI: Oil and Natural Gas Corporation wants to quit from Cairn India's prolific Rajasthan oil fields but the exit will not absolve it from its obligation to pay government levies on the crude oil produced.

The government, in order to attract foreign investment, had promised to take care of statutory levies on oil and gas production when it awarded blocks like RJ-ON-90/1 in Rajasthan more than a decade ago.

ONGC was appointed licensee for RJ-ON-09/1, which was awarded to Royal Dutch Shell, which subsequently sold it to Cairn, and was made liable to pay royalty on behalf of the operator. Additionally, the state-run firm was given a choice of taking a 30 per cent stake once oil or gas was found.

"Even if ONGC (is) to relinquish its 30 per cent stake, it will not be absolved of its liability to pay 20 per cent royalty on all crude oil produced from the Rajasthan block," a Petroleum Ministry official said.

If ONGC is relieved of its licence obligation, the onus of paying royalty will fall on the central government, which can make the payment from its share of oil and gas from the block called profit petroleum.

ONGC would like to "relinquish" its 30 per cent interest in the block unless the Government reimburses it for the royalty it has to pay on behalf of Cairn. At USD 40 a barrel, the royalty for 6 million tonnes a year of average output came to USD 352 million (Rs 1,760 crore).