ONGC, OIL to face royalty burden worth $1 bn -Governance Now

ONGC, OIL to face royalty burden worth $1 bn

Petroleum ministry has said that both the companies will pay royalty to all similarly placed crude oil-producing states at pre-discount prices effective from February 1, 2014

GN Bureau | July 18, 2016

#ONGC #OIL #petroleum ministry #royalty #crude oil

Government-owned Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL) will face an additional royalty burden of more than $1 billion.

The Narendra Modi government has decided that they would have to pay royalty to crude oil-producing states such as Assam, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu, according to a news report published in The Financial Express. Petroleum ministry in an order dated July 15 has said that both the companies will pay royalty to all similarly placed crude oil-producing states at pre-discount prices effective from February 1, 2014.

Despite the fact that the shift from gross to net price for royalty was made in 2008, both the companies will have to pay royalty on their gross realisation on sale.

The difference between the gross and net price is the subsidy burden borne by these upstream companies to compensate state-run IOC, HPCL and BPCL for selling sensitive petroleum products below market cost.

ONGC and Gujarat are embroiled in a legal tussle over the calculation of royalty payments. In November 2013, the Gujarat High Court ordered ONGC to pay Rs 10,000 crore dues to the state till September 2013 to make up for the royalty dues.

The maharatna company appealed in the Supreme Court against the Gujarat HC order and on February 13, 2014, the apex court stayed the high court order, but told ONGC to pay royalty at the pre-discount price starting February.

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