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ONGC partners in 6 pre-NELP blocks may have to share cess, royalty load - Report

Gasoil News - Published on Thu, 07 Dec 2017

Image Source: Wikimedia
ET reported that Oil and Natural Gas Corporation’s partners in six pre-NELP blocks will have to share royalty, cess and other government charges with the state firm in proportion to their stakes, ending the current practice of ONGC alone bearing state levies for entire production, according to an oil ministry proposal that would soon be sent to the Cabinet. Once the proposal gets the Cabinet’s nod, Vedanta, Essar Oil, GSPC, Focus Energy, Hindustan Oil, and UK’s Hardy Oil would have to bear the burden of government charges in their respective fields where they partner with ONGC.

The Directorate General of Hydrocarbons (DGH) had recently recommended ONGC exit the contract and let other partners share the government charges in proportion to their stakes in these six blocks. But the government didn’t accept the DGH proposal of removing ONGC from the blocks while taking its recommendation of allowing shared liability.

However, these six blocks—CB/OS-2, CBON/2, CB-ON/3, CB-ON/7, CYOS90/1 (PY3), RJ-ON/6—are located mainly in Gujarat and Rajasthan.

The prolific Barmer block (RJON-90/1) too had the same royalty and cess sharing rule earlier, but about six years back Vedanta, while purchasing the field from Cairn Energy, agreed to share with ONGC the liability of paying government charges. Vedanta is the operator of the field with 70% participating interest in the Barmer block. In other six pre-NELP blocks too, partners operate fields with ONGC owning only minority interest. These are called pre-NELP blocks because they were auctioned before the NELP, or New Exploration Licensing Policy, was launched about two decades ago, which mandated proportionate sharing of government charges by all contractors of a block.

The oil ministry is now planning to extend the model adopted in Barmer to other six blocks. Besides payment of government charges by all partners, the government is also proposing to make these payments recoverable as costs, an official said. This means the profit available for sharing between the government and contractor would be reduced by this amount.

An official said that “This will incentivise investment in these fields and raise domestic production.” DGH had earlier observed that the liability to pay cess and royalty by ONGC on the entire production makes the block economically unviable for the company.

Source :

Posted By : Rabi Wangkhem on Thu, 07 Dec 2017
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