REVISION IN RATE OF ROYALTY ON INDIGENOUS CRUDE OIL
Shri Ram Naik, Minister
of Petroleum & Natural Gas, informed Media in a Press Conference
here today that the Cabinet, in its meeting held yesterday, approved
a proposal of the Ministry of Petroleum & Natural Gas to devise
a new scheme of royalty and revision in the rate of royalty on
indigenous crude oil from areas outside NELP regime. The revision
in the rate will be effective from 1.4.1998, from which date dismantling
of Administered Pricing Mechanism (APM) was initiated by the Government.
Royalty on crude
oil is fixed by the Government in terms of the Oilfield (Regulation
& Development) Act, 1948 which provides royalty not to exceed
20% of the well-head price at the oilfields or the well-head,
as the case may be. Royalty for the onland production is paid
to the State Government and for the offshore production to the
Central Government.
The rate of royalty
on crude oil had earlier been increased from Rs. 800/MT to 850/MT
on 09.08.2001. This increase was the third in its series since
the present Government came to power in October, 1999. The Government
had earlier increased the rate of royalty from Rs. 578/MT to Rs.
750/MT on 01.12.1999 and thereafter to Rs. 800/MT on 02.05.2000.
These increases in royalty were provisional in nature and subject
to adjustment once final rate of royalty on crude oil w.e.f. 1.4.1998
was finalised. Today's decision of the Government gives finality
to the matter.
A Committee to evolve
a new scheme of royalty on crude oil applicable with effect from
1.4.1998 was constituted by the Government. The Committee had
taken into consideration views of State Governments / UTs including
Assam, Gujarat, Andhra Pradesh, Arunachal Pradesh, Rajasthan,
Tamil Nadu etc. as also the views of National Oil Companies and
other Stake holders before finalising its report. Expert opinion
of NIPFP, an eminent agency was also obtained by the Committee.
The Committee submitted its Report on 26.11.2001, which had been
under examination by the Government.
After today's decision,
royalty on crude oil will now be fixed on ad valorem basis and
royalty calculations will now be made on a monthly periodicity
on "cum-royalty" basis. The Government have decided that for the
period from 1.4.1998 to 31.3.2002, royalty will be paid on the
well-head price derived from notified percentages of weighted
average f.o.b. price of actual import of crude oil stipulated
in the Government Resolution on dismantling of the APM issued
in November, 1997. Royalty on crude oil production from onland
and shallow water offshore areas will be paid @ 20% of this price
during this period. Any additional amount accrued as a result
of royalty revision during this period for production from onland
areas will be borne as liabilities against the pool account and
this will not be borne by ONGC and OIL. For the period effective
1.4.2002, royalty will be based on well-head prices of crude oil
as derived from the market driven price obtained /obtainable by
the producers based on "Arm's Length Transaction". Rate of royalty
will be 20% for onland areas and 10% for shallow water areas.
For onalnd areas the matter will be reviewed after 3 years. There
will be relatively lower rate of royalty for crude oil production
from deep water areas, heavy crude oils and production under Enhanced
Oil Recovery (EOR)/Improved Oil Recovery (IOR) Schemes. The Government
have also decided to allow a special grant @ 2% over and above
the applicable rate of royalty in respect of the State of Nagaland.
This is in view of special provisions under Art. 371-A of the
Constitution.
The above decision
of the Government will provide necessary relief to the oil producing
States. The State Government of Assam will get arrears payment
of about Rs. 180 crore, Andhra Pradesh Rs. 11 crore, Gujarat Rs.
220 crore and Tamil Naidu Rs. 17 crore, for the period 1998-2002.
These States would also get enhanced royalty during the post APM
period i.e. from 1.4.2002 as royalty will be linked to well-head
price derived from market driven price of crude oil. While royalty
payable would now depend on the crude quality and its price, the
current provisional amount of Rs. 850 per metric tonne would increase
to about Rs. 1210 per metric tonne on an average and the annual
additional receipts to States will be about RS. 400 crore, at
a crude oil price of US$ 22 per barrel, for example.
The above decision
of the Government would meet the long standing demands of the
oil producing States. Royalty has so far been a contentious issue
between the Centre-State relations. Augmented revenue realisation
from royalty on crude oil will definitely lead to cooperation
and support from the States. The decision of the Government would
thus benefit both the State Governments and as also oil producing
companies namely ONGC & OIL.
