ONGC board okays pact to buy GSPC stake for $1.2 billion

THE BOARD of state-owned ONGC has approved signing of definitive agreements for buying debt- laden GSPC’S entire 80 per cent stake in Kg-basin natural gas block for $1.2 billion.

ONGC will pay $995.26 million for three discoveries in the KG-OSN-2001/3 block that are under trial production since August 2014. Another $200 million will be paid for six other discoveries for which GSPC has been finalising an investment plan to bring them to production.

“ONGC Board has approved execution of farm-in/farm-out agreement with GSPC in respect of acquisition of 80 per cent Participative Interest (PI) and Operatorship in the NELP–III block KG-OSN- 2001/3,” a company statement said here.

ONGC had on December 23 last year agreed to acquire the stake of Gujarat State Petroleum Corp (GSPC).

Thereafter, “the two companies, after several rounds of discussions and legal due diligence, have agreed to the terms and conditions to be incorporated in the Farm-in / Farm-out agreement,” the statement said.

The Farm-in/farm-out agreement sets forth the modalities to be followed to effect the assignment of PI and change of Operatorship with the approval of the Government as per the existing Production Sharing Contract (PSC) and Joint Operating Agreement of the block, it said.

Besides the payout to GSPC, ONGC will have to pay for the entire development cost of the six discoveries which may run into at least a couple of billion dollars.

GSPC, which had a debt of Rs 19,716.27 crore as on March 31, 2015, has so far made 9 gas discoveries in the Bay of Bengal block. Of these, three — KG-08, KG-17, KG-15 — commonly known as Deendayal West (DDW) fields — have been approved for development.

But against an approved field development plan (FDP) cost of $2.75 billion, GSPC seen a huge cost-overrun, incurring $2.83 billion as on March 31, 2015. Additionally, it had incurred an exploration cost of $584.63 million, taking total expenditure as on March 31, 2015 to $3.41 billion.

As per the requirement of the FDP, 12 more development wells are yet to be completed which would further escalate the project cost.

The trial production from the DDW field commenced in August 2014, but the average production achieved is only 19.45 million standard cubic feet per day against a targeted commercial production of 200 mmscfd.

Commercial production has not commenced as production rate has not yet stabilised. The DGH approved FDP had envisaged commercial production from December 2011. THE CENTRAL Board of Direct Taxes (CBDT) on Friday clarified that rules under Place of Effective Management (POEM), which require firms that are controlled from within the country to pay taxes in India, will not apply to companies with an annual turnover of Rs 50 crore or less. The rules will come into effect from the next fiscal.

In January, the tax department had said as much in a press release after the POEM rules were announced. However, the exemption to companies with a turnover of less than Rs 50 crore didn’t find a mention in the circular released subsequently.

Last month, the tax department had come out with the long-awaited POEM rules that will require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes based on where the business if effectively controlled.

In a clarificatory circular, the CBDT said the provision of POEM “shall not apply to a company having turnover or gross receipts of Rs 50 crore or less in a financial year”.

While issuing the POEM rules, CBDT had said the intent is to target shell companies and those which are created for retaining income outside India though real control and management of affairs are located