Cairn In­dia may Have to Pay Govt 10% Ex­tra Profit

Resource Digest - - CONTENTS -

Cairn In­dia will have to give the gov­ern­ment an ad­di­tional 10% share in profit petroleum af­ter the re­newal of its con­tract for Ra­jasthan oil and gas field, ac­cord­ing to a pro­posed pol­icy on con­tract re­newals likely to be an­nounced in a month.

The com­pany, con­trolled by bil­lion­aire Anil Agar­wal, has sought to ex­tend the con­tract to op­er­ate the oil and gas block in Barmer by 10 years af­ter the ini­tial 20-year agree­ment runs out in 2020.

The gov­ern­ment is un­likely to de­cide on Cairn In­dia's ex­ten­sion re­quest on a stand­alone ba­sis and is readying a pol­icy that will guide the re­newal of blocks such as the one op­er­ated by the com­pany, peo­ple aware of the mat­ter said. The oil min­istry will shortly take the pro­posal to the cab­i­net for ap­proval, they said.

The pro­posed pol­icy will cover 10 PRE-NELP ‘ex­plo­ration' blocks, or the blocks that were auc­tioned be­fore the New Ex­plo­ration Li­cens­ing Pol­icy came into be­ing. It will be more or less a copy of the pol­icy an­nounced last year for the ex­ten­sion of the so-called PRE-NELP ‘dis­cov­ered’ fields, or 28 small and medium-sized fields dis­cov­ered by Oil and Nat­u­ral Gas Cor­po­ra­tion and Oil In­dia Ltd, and awarded to pri­vate joint ven­tures be­tween 1994 and 1998. The most im­por­tant pro­vi­sion in the pol­icy un­veiled in March is that the gov­ern­ment's share of profit petroleum dur­ing the ex­tended pe­riod of con­tract shall be 10% higher than the first con­tract pe­riod.

Cairn In­dia has been lob­by­ing the gov­ern­ment hard to ex­tend its con­tract on the same terms as now but the gov­ern­ment wants a larger share of profit dur­ing the ex­tended pe­riod, lead­ing to pro­tracted ne­go­ti­a­tions.

This prompted the com­pany to ap­proach the Delhi High Court to force the gov­ern­ment to de­cide on an early re­newal. The court has asked the gov­ern­ment to de­cide on the mat­ter of ex­ten­sion quickly with­out wait­ing for a pol­icy for con­tracts re­newals for other fields. The mat­ter has been in court for about a year. The pol­icy that the gov­ern­ment an­nounced last year also pro­vides for the con­trac­tors to pay roy­alty and cess at pre­vail­ing rates and not at con­ces­sional rates stip­u­lated in the ini­tial con­tracts. Un­der the pol­icy, the re­newal of con­tracts will be con­sid­ered for 10 years or the eco­nomic life of the field, which­ever is ear­lier.

THE PRO­POSED POL­ICY WILL COVER 10 PRE-NELP ‘EX­PLO­RATION’ BLOCKS, OR THE BLOCKS THAT WERE AUC­TIONED BE­FORE THE NEW EX­PLO­RATION LI­CENS­ING POL­ICY CAME INTO BE­ING

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