CAIRN, ONGC AND TATA PETRO SPAR OVER CESS, ROY­ALTY

ONGC HAS BEEN BEAR­ING THE CESS AND ROY­ALTY SINCE IN­CEP­TION OF PRO­DUC­TION OF THE BLOCK AND HAS DE­CLINED TO BEAR IT FUR­THER

Resource Digest - - MANPOWER -

State-run Oil and Nat­u­ral Gas Cor­po­ra­tion (ONGC) and its part­ners, Cairn In­dia and Tata Petro­dyne are at log­ger­heads over the pay­ment of cess and roy­alty at its CB-OS/2 block in the Gulf of Cam­bay, off western coast of Gu­jarat. The block in­cludes the Lak­shmi and Gauri fields.

The con­sor­tium is led by Cairn En­ergy, hav­ing par­tic­i­pat­ing in­ter­est of 40%. ONGC, the li­censee, has 50% par­tic­i­pat­ing in­ter­est and Tata Petro­dyne Lim­ited 10% in the block.

Sources said ONGC, which has been bear­ing the bur­den of cess and roy­alty on the block since in­cep­tion of pro­duc­tion from the block, has de­clined to bear it fur­ther say­ing in­vest­ments from the joint ven­ture may turn neg­a­tive if the state-run firm is to bear cess and roy­alty fur­ther. Of­fi­cials part of the joint ven­ture did not wish to get quoted but said the op­er­at­ing com­mit­tee, af­ter unan­i­mously ap­prov­ing the in­vest­ment pro­gramme rec­om­mended the same for man­ag­ing com­mit­tee ap­proval, "which was the stage when ONGC did not ap­prove the pro­gramme say­ing that the in­creased rates of cess/ roy­alty made the pro­gramme techno-eco­nom­i­cally un­vi­able."

A se­nior of­fi­cial from ONGC said the terms and con­di­tions of the project have to be dis­cussed and re­viewed by part­ners. "Each project has to be dis­cussed and tech­ni­cal process fol­lowed which will be done in this case as well," the ONGC of­fi­cial added.

The joint ven­ture part­ners said the dif­fer­ence of opin­ion over pay­ment of cess and roy­alty means fur­ther in­vest­ments in the field could suf­fer. Pro­posed de­vel­op­ment drilling plan as bud­geted is $77.50 mil­lion for four well drilling and fa­cil­ity upgra­da­tion.

Of­fi­cials said that ONGC chose not to ex­er­cise ar­ti­cle 16.7 of the pro­duc­tion shar­ing con­tract, which specif­i­cally states that in the case of any change in any In­dian law deal­ing with in­come tax, ex­port-im­port tax, ex­cise, cus­tom duty, or any other levies, du­ties or taxes im­posed on petroleum or de­pen­dent on the value of petroleum re­sults in a ma­te­rial change to the ex­pected eco­nomic ben­e­fits ac­cru­ing to any of the par­ties af­ter the ef­fec­tive date of the con­tract, the par­ties shall con­sult promptly in good faith to make nec­es­sary re­vi­sions and ad­just­ments to the con­tract in or­der to main­tain such eco­nomic ben­e­fits to each of the par­ties.

"It is ev­i­dent that this fis­cal sta­bil­ity clause was present only to strengthen the rights of each party which ONGC chose not to ex­er­cise to the detri­ment of the con­trac­tor par­ties," an of­fi­cial said.

In an emailed re­sponse, on of the joint ven­ture part­ners said, "The pri­vate JV part­ners in the block are keen to take it for­ward in the spirit of the PSC as the pro­posed project will gen­er­ate an ad­di­tional com­bined rev­enue of over $250 mil­lion dol­lars and the pri­mary ben­e­fi­ciary will be the Gov­ern­ment and its nominee ONGC. This is sig­nif­i­cant at a time when In­dia's fuel im­ports -oil and gas - is mount­ing ev­ery pass­ing day. This plan re­in­forces the pri­vate JV part­ners com­mit­ment in this the ma­tured block to ar­rest its nat­u­ral de­cline and ex­tend the life of the field."

The ac­tual dif­fi­culty is clear un­will­ing­ness to re­spect the sanc­tity of con­tracts by the gov­ern­ment com­bined with the dif­fi­dence of ONGC and the op­er­a­tor (Cairn In­dia) so as not to ruf­fle feath­ers, said a se­nior ex­ec­u­tive from one of the com­pa­nies.

Pro­duc­tion from the block be­gan in 1997 and it is ex­pected that the pro­file con­tin­ues through to 2023. So far the con­sor­tium part­ners have spent around Rs 600 crore on the field.

THE JOINT VEN­TURE PART­NERS SAID THE DIF­FER­ENCE OF OPIN­ION OVER PAY­MENT OF CESS AND ROY­ALTY MEANS FUR­THER IN­VEST­MENTS IN

THE FIELD COULD SUF­FER

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