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ONGC faces Rs 392 cr additional royalty burden

Of the Rs 392.50 crore, about Rs 300 crore would go to Assam and another Rs 91.86 crore to Andhra Prades

Policy Pulse
Publish Date: Jul 23 2016 1:01PM | Updated Date: Jul 23 2016 1:01PM

ONGC faces Rs 392 cr additional royalty burden

 The Oil and Natural Gas Corp (ONGC) will have to shell out Rs 392 crore and Oil India Ltd over Rs 1,100 crore after the Centre asked them to pay royalty at gross crude oil price and not the net rate they actually realise.

"We have to pay a total of Rs 392.50 crore to implement the order to pay royalty to state governments on revised terms from back date of February 2014," a an  ONGCofficial said.
Of the Rs 392.50 crore, about Rs 300 crore would go to Assam and another Rs 91.86 crore to Andhra Pradesh.
ONGC is paying royalty at revised terms to Gujarat already.
For Oil India Ltd (OIL), which produces most of its crude oil in Assam, the liability would be Rs 1,100 crore to Rs 1,150 crore.
As per government mandate, ONGC and OIL offers discounts on crude oil to make up for a part of the losses refiners suffer on selling cooking gas (LPG) and kerosene at government controlled rates. These discounts also covered diesel till October 2014 when the price of the fuel was deregulated.
Therefore, ONGC/OIL would raise a gross bill based on the existing global oil price but their actual realisation was less than that after accounting for the subsidy discount.
But  producing states felt ONGC and OIL need to pay royalty on gross billing. Gujarat High Court in November 2013 ruled in favour of the state government and ONGC was asked to pay about Rs 10,000 crore in past royalty dues.
This encouraged other oil producing states, particularly Assam, to demand a similar treatment. Till the time Congress ruled Assam, Oil Minister Dharmendra Pradhan stressed that the state government will have to approach the judiciary to get similar relief.
Now with a BJP government coming to power in Assam, his ministry few days back issued orders asking ONGC and OIL to pay royalty at pre-discount rates effective February 1, 2014.
"It has been decided that ONGC Ltd and Oil India Ltd will pay royalty to all similarly placed crude oil producing states at pre-discount prices effective February 1, 2014, pending the outcome of the Special Leave to Appeal (Civil)... Filed by ONGC Ltd before the Supreme Court (against the Gujarat High Court order)," the ministry order said.
With this order, Assam stands to get more than Rs 1,400 crore as additional royalty from ONGC/OIL. Andhra Pradesh will get about Rs 92 crore extra royalty from ONGC due to this decision.