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Cairn deal: PetroMin to push for reimbursement
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BS Reporter | 2011-02-14 00:21:00
Likely to press finance ministry on repayment to ONGC to address royalty hurdle
With the government approval for the Cairn-Vedanta deal now tied to the payment of royalty on crude oil produced in the Barmer block of Rajasthan, the ministry of petroleum and natural gas is likely to push for reimbursement of the amount to Oil and Natural Gas Corporation.
ONGC has ruled out any counter-bid for Vedanta’s $9.6-billion purchase of majority stake in Cairn India but it wants the government to settle the Rs 12,600-crore royalty claim that it would be paying on the entire production from the block, though it has only 30 per cent interest in it.
Though petroleum minister S Jaipal Reddy had said the government would expedite clearance for the deal, the ministry faces the knotty issue of giving a green signal without settling ONGC’s royalty payment issue. "The petroleum ministry is likely to take up the issue with the finance ministry. The petroleum ministry had in August 2004 moved a Cabinet note for reimbursement of statutory levies to ONGC and Oil India for blocks that were awarded to private companies prior to the New Exploration and Licensing Policy (Nelp) in 1991. It will now renew the proposal," said a person close to the development.
After a meeting with Cairn Energy CEO Bill Gammell last week, Reddy had said the government would support the deal in-principle, but some of the concerns of ONGC needed to be addressed before clearing it. A unilateral decision by the ministry would also be tricky at a time when the government is under heat for telecom scams.
The government had signed 28 production sharing contracts prior to the Nelp, under which all statutory levies were to be borne by the national oil companies as licensees, except under those contracts where cess was to be borne by the contractor.
To ensure investment for NOCs in these blocks remained viable, the petroleum ministry had more than a decade before mooted a proposal that they be reimbursed the statutory levy from the government share in profits from petroleum or from the oil pool account. Since the oil pool account is not in existence any more, the only way out is either to reimburse the money from profit petroleum (the total value of output produced and saved, less costs) or make it part of cost petroleum (what the operator is entitled to take for meeting contract costs).
While ONGC has asked the ministry to allow making royalty payment part of the cost petroleum, such a move will reduce the profit share of operator Cairn India. "Though the government share in profit petroleum will also come down, it in any case will be losing that amount, since it will be paid by ONGC to the Rajasthan government in the event of a reimbursement of royalty," said a senior ONGC executive.