Govt lost Rs 1400 crore as Cairn not allowed to export oil: HC told

New Delhi: Cairn India Tuesday told Delhi High Court that a loss of Rs 1400 crore has been caused to the government as the company was forced to sell its share of crude from its Rajasthan oil field to private players at prices 20 percent less than the global rates.

The contention was opposed by the Ministry of Petroleum and Natural Gas which told Justice Manmohan that the loss to the government as calculated by Cairn was "notional" and the company was incurring no loss either as it was selling the crude, not picked up by PSUs or the government, to private domestic players.

Cairn, a subsidiary of UK-based Vedanta group, told the court that as per the production sharing contract (PSC) it has with the government, it gets 70 percent of crude produced from the well while the government gets 30 percent.

Under the PSC, the government or its nominee can pick up the company's share of the crude and what was not picked up, could be sold to private players or exported, Cairn said.

However, after the crude is sold, government gets 70 percent of the profits, the company told the court. It claimed that as a result of selling the excess crude to private domestic companies like Reliance and Essar, at rates lower than international prices, government was losing about Rs 4.5

crore per day.

Cairn also claimed that while the government was losing around Rs 1400 crore, the company's losses came to about a third of the amount.

Justice Manmohan, thereafter, observed that if the excess crude was sold at lower rates then "ultimately" the government would suffer. He asked central government standing counsel

Anurag Ahluwalia to take instructions in two weeks as to whether the ministry was willing to pick up the excess crude or can the company export it.

The court said it was the last and final opportunity for the government to get back on the issue as earlier too on December 14 last year, the ministry had sought time to take instructions, but no decision had been taken till now. 

The court directed the government counsel to place its order before the empowered committee of secretaries, which was dealing with the issue, on January 21 and listed the matter for further hearing on February 4.

During the hearing, Ahluwalia told the court that the issue raised by Cairn was under consideration and would take time as the decision to either pick up the crude or allow the company to export it was to be taken at the highest level.

He said the Petroleum Ministry has also consulted the Law Ministry whose comments were awaited.

The government counsel also said that no loss was being caused to the company as it was already selling the excess crude to private domestic players and can continue to do so.

In response, Cairn said the government appeared keen on the company selling its crude to Reliance and Essar, adding that it would sell to those entities only at the international rates and if they do not buy, then it should be allowed to export the crude.

It said the crude being produced from the well was "sweet" crude which contains low levels of sulphur, and only Reliance and Essar have the refineries to refine it.

It also said that after refining the crude, these companies were exporting the oil abroad at global rates, but Cairn was not being permitted to do so.

Indian Oil Corporation Ltd (IOCL) said the crude was so waxy that it solidifide in the pipeline, for which it was not interested in taking it. To this, the court said, "then let it go abroad".

The court on December 14, 2015, had asked the government whether it would buy the excess "sweet" crude produced by Cairn's Rajasthan oil field and if not, can the company export it.

Cairn had earlier told the court that it had made several representations to Directorate General of Foreign Trade (DGFT) for permission to export the crude, but did not get any response.

It also claimed that prior to approaching DGF, it had written to the IOCL to "canalise" export of the crude, but got no response from the PSU. IOCL is the canalising agent for export of crude.

Canalising agents are those through which a product can be imported or exported by companies which do not have permission to do so directly.