Share of govt profits for oil PSUs mooted

In fact, the ministry had replied to the CAG’s charges, and its reply was considered and ratified by the CoS on April 11. The ministry says the move to part with its profits is to partly compensate ONGC/OIL for past costs and to help them pay for the cess and royalty payments on these fields. Its note to the CoS on the issue of transfer of profits, in fact, states that the amount that will accrue to ONGC/OIL may not be adequate to meet full reimbursement of past costs. Under the agreement signed with the private oil companies, ONGC/OIL are meant to pay the annual cess and royalty fees to the government on behalf of the joint ventures. In return, ONGC/OIL which are partners in these fields would get a share of the profits earned by the private parties.

The controversy over these oilfields goes back to March 1996, when the CAG quantified the past costs incurred by ONGC/OIL for developing these fields, before the government decided to put them up for bidding to the private sector. It found that the private bidders had not fully paid up these past costs to the national oil companies Reliance, for instance, did not pay any part of the past costs for Mukta-Panna oilfields while Videocon paid a part of the costs for the Ravva fields it was awarded. ONGC had sought reimbursement of Rs 3,535 crore for the Mukta-Panna-Tapti fields and Rs 595 crore for the Ravva field. The ministry, however, points out that while bidding for these fields, the private operators had to bid on several counts — these included the extent of past cost they would reimburse, the signature bonus they were willing to offer to the government, the amount of oil they would generate and the amount they were willing to share with the government. So while some of the bidders offered to reimburse more of the past cost, others preferred to offer higher share of profits to government, and others based their edge on their ability to drill more oil — and hence provide more profits to government.

Private players had also contended, at the time of the controversy, that it was unreasonable to expect them to reimburse the full past cost as ONGC/OIL may have spent too much on discovering/developing these fields in the first place. Besides, in certain cases, ONGC had also recovered oil from these fields and had made up a part of its cost anyway.

The ministry has also suggested that the rate of cess and royalty on oil and gas explored from small and medium-sized fields in the offshore region be frozen at rates which were in existence at the time of offering these fields. The royalty on oil from these fields would be Rs 481 per tonne (as specified in the PSC) instead of Rs 578 per tonne being paid by others. The rates of cess applicable only to crude, has remained unchanged .