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Push for oil levy waiver

ONGC and others sought relief as the current prices do not even cover operating cost
Sources said the oil ministry was in talks with the finance ministry in waiving the oil cess and royalty demands due to the slump in global crude prices and a decision could be expected soon.

R. Suryamurthy   |   New Delhi   |   Published 27.05.20, 07:32 PM

State-owned ONGC and others impacted by the slump in global crude prices are likely to get some relief from the government that is considering waiving the cess and royalty.

Sources said the oil ministry was in talks with the finance ministry in waiving the oil cess and royalty demands due to the slump in global crude prices and a decision could be expected soon.

They said the issue is being considered in a way that it balances the interest of the oil companies without affecting the revenue of the exchequer already hit by the lockdown.

ONGC and others had sought the wavier as the current oil and gas prices do not even cover the operating cost.

ONGC’s per-barrel production cost is in the range of $35-40 and global crude prices have been trading at below this rate for a long time. The price of domestic gas has also been slashed 26 per cent to $2.39 per million British thermal units (mBtu), whereas ONGC’s output cost is $3.8-6.6/mBtu in various fields. The cess on crude production (value) is 16.7 per cent, while the royalty charged is 15 per cent.

Sources said the industry has requested the government to reduce the royalty, cess and profit petroleum it receives from domestic crude oil producers under the PSC regime.

They also want the production sharing contracts (PSCs), slated to be renewed in September, to be extended till the end of 2020-21. Other demands include the removal of ceiling on gas price for deep water, ultra-deep water and high-pressure-high-temperature fields and zero GST levies on exploration and development activities.

Apart from Cairn Oil and Gas, which is the key player, other private firms engaged in domestic crude production include Selan Oil, Hindustan Oil Exploration Company and Sun Petrochemicals.

Sources said the ONGC management has told the government its average price realisation of $22 per barrel in April is not enough to cover even the operating cost. On top of it, the drop in natural gas prices to a decade low of $2.39 per million British thermal unit is leading to a loss of about Rs 6,000 crore annually.

The PSU has asked the government to abolish oil development cess if the price realised by producers is less than $45 per barrel. It also wants royalty that the government charges on oil and gas produced from the offshore area to be waived. 

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