Oil PSUs to pay royalty on gross price to producing states

New Delhi: In a bonanza to oil producing states like Assam, the government has ordered state-owned ONGC and Oil India to pay royalty to them on the gross price for crude oil and not the net rate they actually realise.

As per government mandate, Oil and Natural Gas Corp (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.

So in effect, ONGC/OIL would raise a gross bill based on the prevailing international oil price but its actual realisation was less than that after accounting for the subsidy discount.

However, 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 prompted other oil producing states, particularly Assam, to demand a similar treatment. Till the time Congress ruled Assam, Oil Minister Dharmendra Pradhan maintained that the state government will have to approach the judiciary to get similar relief.

Now with a BJP government coming to power in the state, his ministry last week 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 72 crore extra royalty from ONGC due to this decision.

According to the Oil Field Act, ONGC/OIL are required to pay 20 percent royalty on price of crude oil it extracts from onland oil blocks to the state governments.

ONGC till 2004 paid royalty on gross billing. But, in 2004, the Union government asked it to provide crude to refiners like Indian Oil Corp Ltd at discount as per burden- sharing mechanism.

Since then ONGC paid royalty on discounted price, resulting in reduction of royalty paid to Gujarat and other states. The state also complained to the Centre in this regard.

Gujarat government in 2011 filed a petition before the High Court, stating that it should be paid royalty at market rate and the difference in royalty payment since 2008 at pre- discount rate (in comparison to market rate) was computed at Rs 9,000 crore to Rs 10,000 crore. The High Court ruled in its favour in November 2013.