New Delhi, March 1: Domestic oil producers such as ONGC, Oil India and Cairn India have got a partial relief in the budget with the government deciding to levy a cess of 20 per cent calculated on an ad valorem basis.

At present, a fixed cess of Rs 4,500 per tonne is imposed.

"Clause 222 seeks to amend the Schedule to the Oil Industry (Development) Act, 1974 so as to levy cess at the rate of 20 per cent ad valorem instead of the present rate of Rs 4,500 per tonne, on domestically produced crude oil," the budget document said.

The Oil Industry (Development) Act, 1974 provides for a cess collection as an excise duty on crude. Cess paid by producers cannot be recovered from refineries and therefore is part of the production cost.

At a $35-per-barrel price, ONGC will have to pay Rs 3,500 per tonne cess on the crude it produces from fields given to it on a nomination basis. Cairn India will also have to pay the same amount for oil from the Rajasthan fields.

An ad valorem tax is linked to prices, meaning collections are higher when prices rise and vice-versa.

Industry officials expressed disappointment as they were expecting cess to be reduced to 7-9 per cent.

"The 20 per cent ad valorem cess is directionally a right step. However, a lower rate of cess - 5-8 per cent of realised price of crude oil - would have likely helped to stimulate the oil and gas sector; particularly fields that are already producing. Lower cess rate was imperative as, given the geological landscape, the fiscal burden on the sector is very high vis-a-vis other countries," Mayank Ashar, CEO of Cairn India, said.

However, it will bring some relief to the exploration companies that have been badly hit by the slump in global crude prices.

Explorers have been pitching for a shift to ad valorem tax as global crude prices have slumped to below $30 per barrel. The cess translates into one-third of the realisation going away in just one levy.

"Prices are expected to remain at low levels in the near term because of high supplies, modest global demand and the decision of Opec to defend market share. Therefore, the profits of upstream companies are expected to be under significant pressure in the near to medium term," Icra said in a research note.