Cairn to pay production cess on Rajasthan oil
11 Sep 2009
The Petroleum Ministry has asked Cairn India to pay production tax of Rs2,500 per tonne of oil it produces from its Rajasthan fields even as the contract lays the onus of the levy on state-run Oil and Natural Gas Corporation (ONGC), which is a junior partner.
The ministry has asked Cairn to share 70 per cent of the production cess at the rate of Rs2,500 per tonne of oil while ONGC will pay or its 30 per cent stake, petroleum secretary R S Pandey said.
The original contract had not specified Cairn's share in the cess in proportion to its 70 per cent interest in the Rajasthan fields while state-run ONGC was expected to pay the entire cess.
On the contrary, the government had in all other pre-NELP oil exploration contracts awarded to foreign firms, clearly stated that the contractor will not bear any cess and royalty on oil and gas. In this case it was vested on the lecensee, which in the case of the Rajasthan block is ONGC.
However, while the production-sharing contract for Rajasthan block clearly makes ONGC liable to pay royalty, there is no specific mention of oil development cess.
"In our view and as per legal opinion we have obtained, cess is to be paid by Cairn and ONGC. Cairn has protested (as its liability on cess is not defined in the production sharing contract) but we have told them to pay so they are paying," he said.
Pandey said Cairn is now paying "under protest" and is likely to challenge the Oil Industry Development Act (OIDA) cess. "They will contest it at appropriate forums. If there is any legal remedy, they can try their luck," Pandey said.
Cairn had earlier disputed the government's demand for the OIDA cess, but had also pointed at the risk to potential investors at the time of launching its initial public offer (IPO).
Cairn, which ramped up supplies to 30,000 barrels per day, will now be supplying crude to the government-nominated buyers - MRPL, IOC and HPCL - for the offtake of initial crude output from the Rajasthan block for 2009-10 and 2010-11.