Centre’s oil royalty bill to erode subsidy gains

Gujarat, Assam to get ~14,715 crore in instalments

If the Centre pays ~14,715 crore as royalty — due to Assam and Gujarat on behalf of its two oil companies — it will give up gains made through lower petroleum subsidy.

Also, Union-governmentowned Oil and Natural Gas Corporation (ONGC) will need to take a ~2,500 crore payout, as royalty, on its books, impacting its performance in the quarter ending March 31.

This year, the government would be paying the states a little over ~2,207 crore — almost washing out the gain of ~2,468 crore it expects to make in FY17, over the subsidy (~29,999 crore) it paid in FY16.

According to a settlement between the Centre, the two state governments, ONGC and Oil India, the central exchequer will pay another ~9,978 crore to the two states in FY18. In that year, it hopes to pay ~25,000 crore as petroleum subsidy, gaining ~2,531 crore over this year’s revised estimate.

According to the settlement, royalty payment for five years, starting 2008, would be at the pre-discounted oil price. As part of the subsidy-sharing mechanism devised by the Union government, the two companies gave discount to oil marketing companies on their purchases of crude oil.

The two states insisted that royalty at the rate of 20 per cent be paid on the international price to which the crude oil was benchmarked and not on the discounted rate. Officials said the Centre would pay the royalty difference to Tamil Nadu and Andhra Pradesh also, though the amounts would be much less.

For 12 quarters now, ONGC and OIL were not required to give the discount since global prices had come down. Prior to that, however, ONGC had been paying royalty to the states on a prediscounted rate. In November 2013, the Gujarat High Court ordered it to pay differences in royalty on crude oil within two months and also royalty to the state government at the market rate (gross billing price prior to discount).

From February 2014 to June 2015, ONGC paid ~2,500 crore to the states. Pending an order in the Supreme Court, where the company appealed, ONGC did not account for it in its books earlier. “The book adjustment would be done now,” said a senior ONGC executive.

The Gujarat case came up for hearing in the Supreme Court on Monday. The Union government had placed before the apex court the settlement details.

The Union government is yet to work out the modalities for paying ~14,715 crore to the states, said a senior official.

In an affidavit filed in the Supreme Court, the government said it would pay ONGC’s outstanding liability of ~8,392 crore in two instalments — 15 per cent in 2016-17 and 85 per cent in 2017-18 — to Gujarat.

In the case of Assam, ONGC’s and OIL’s royalty dues of over ~6,323 crore will be paid in three instalments — 15 per cent in 2016-17, 45 per cent in 2017-18 and 40 per cent in 2018-19. While ONGC is liable to pay ~1,350 crore royalty to Assam, OIL owes ~4,973 crore.

ONGC will need to take a ~2,500 crore payout, as royalty, from its books, impacting its performance in the quarter ending March 31