The Telegraph
Since 1st March, 1999
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Ravva foreign allies in patchup mood

New Delhi, Nov. 27: Cairn Energy of the UK and Marubeni of Japan have made an informal offer to the petroleum ministry for an out-of-court settlement of the amount owed by them to the government as its share in the profits from the eastern offshore Ravva oilfields.

The government has raised a demand of $80 million on the two foreign companies and another $100 million on their Indian partner, the Dhoot-owned Videocon. Since the companies refused to cough up the payment, the government was forced to go into costly arbitration.

It appears that the two foreign partners in the Ravva joint venture are now ready to pay their share. Senior officials are reported to be proceeding cautiously over the latest offer and will be asking Cairn Energy and Marubeni to submit a concrete proposal.

Cairn and Marubeni had earlier taken the stand that the share of the profit due to the government has to be calculated on the post-tax profit of each individual partner in the consortium. Since the foreign companies have had to pay a higher corporate tax, their net profit from the venture is lower and hence the share to be paid to the government has also got to be lower.

However, the government's stand is that the Ravva oilfields are being operated as a single venture by a consortium and, hence, the average rate of corporate tax paid by the foreign and Indian companies forms the basis of calculating the net profit for paying the government’s share.

The privatisation of some ONGC-discovered oilfields in the mid-nineties is turning out to be a rather nasty experience for the country. Payments of around Rs 1,800 crore are due from private companies that had come under dispute in the eastern offshore Ravva oilfields as part of the profit share of the government and the royalty that had to be collected. The royalty has now been paid.

The Indian company Videocon is turning out to be the most troublesome of the joint venture partners. Videocon has admitted that it owes Rs 300 crore to the government.

However, it has taken the peculiar stand that the production sharing contract does not specify the time-frame in which the amount has to be paid and, therefore, it will pay it in its own sweet time.

Senior officials point out that this is an absurd argument as the company is enjoying a regular flow of returns from the oilfield and, therefore, there has to be either a monthly or a quarterly payment schedule. As a last resort, the government has now started deducting around Rs 3 crore a month from the sale proceeds to pay the Rs 300 crore dues.

Since the recovery will take time and the question of the interest due on the payment will also have to be settled, the costly arbitration cannot be avoided.

Earlier, the arbitration proceedings had to be held in Kuala Lumpur but due to the Saars scare the hearing was shifted to London.

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