ONGC to meet finmin over royalty refund in R’than fields

Sanjay Jog

Oil & Natural Gas Corporation (ONGC) will hold a crucial meeting with the finance ministry on Monday to discuss its plea for reimbursement of royalty it will have to pay on behalf of Cairn India in the Rajasthan oilfields, where it has agreed to invest an additional $350 million. The E&P major is liable to pay royalty on the entire crude oil production from the field despite it having a 30% share. Cairn India owns the remaining 70%.

According to ONGC chairman and managing director RS Sharma, ‘’The issue regarding reimbursement of royalty payable by ONGC on 100% share is being actively considered by the government. Earlier, there have been assurances in this regard.”

The ONGC board has approved the rise in cost of developing the Mangala field — the biggest in the Rajasthan block — to $2.396 billion from $1.241 billion. Besides, the cost of smaller adjoining fields would also rise from $261 million to $275 million. The oil PSU will pitch in 30% of this cost.

Sharma said the board has approved additional investments from time to time keeping in view past commitments from the government for reimbursement of such levies being paid by ONGC on behalf of other partners.

The oil PSU also urged the Rajasthan government to provide financial incentives to make the proposal to develop a 15-mt refinery in Barmer viable. “The refinery will be done by a non-PSU entity, possibly an SPV, and unless the project is economically viable, it will not get any debt or equipment supplier,” Sharma said, adding that ONGC was looking at 12% rate of return on the refinery investment.

The ONGC chief’s response comes on the back of Rajasthan chief minister Ashok Gehlot again making an emotional pitch for the development of a refinery in the state.

Sharma said various studies carried out by ONGC has revealed that the refinery was considered unviable as the peak output from Rajasthan fields of over 7.50 million tonne per annum (mtpa) may last a maximum of seven years.

“Even if the oil production is reduced to 4 mtpa (about 90,000 bpd), the refinery is still not viable. For a refinery to become operational, at least four years are required. The state government needs to consider fiscal incentives such as exemption in various taxes and availability of power,” he noted.