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Govt to lose $2 bn on ONGC plan?

business Updated: Feb 08, 2011 22:39 IST
Anupama Airy

An amicable settlement on the royalty issue — coming in the way of the $9.6- billion (Rs43,500-crore) transaction between UK-based Cairn Energy and Anil Agarwal-led Vedanta Resources — is getting difficult and confusing by the day.

While state-owned ONGC is demanding recovery of the royalty (paid on crude oil production from the field) in line with the shareholding and out of the sale proceeds of crude oil from Rajasthan field, Cairn India Ltd has cautioned the government of a significant impact on the government's share of revenues — to the tune of $2 billion (Rs9,000 crore)— if ONGC's proposal to recover royalty from profit petroleum is agreed to.

ONGC — which is the licencee as well as the government nominee for a 30% share in the oilfield — currently has to pay 100% royalty on the entire oil produced from Rajasthan fields.

The advice from Cairn India came on Monday (in a letter dated February 7), immediately after petroleum secretary S Sundareshan met the senior management from Cairn Energy, Cairn India and Vedanta Resources on Sunday.

Cairn India CEO Rahul Dhir also contested the position being maintained so far by the state-owned oil major that the net impact of royalty payment is significant on its (ONGC's) revenue stream.

Dhir said the actual cash flows to ONGC during the last fiscal (2009-10) and the first six months of this fiscal (after considering operating costs, royalty payments and revenues) has been positive.

"If both revenue from their (ONGC's) share of participating interest and the outflow on account of royalty are taken together, the net impact on ONGC is not as significant as is being perceived," Dhir told Sundareshan. ONGC's share of revenues till date from the Rajasthan oilfield stood at Rs1,287 crore and it has paid Rs753 crore as royalty. After adjusting other levies and operating costs, cash flows to ONGC stood positive at Rs206 crore, Dhir said.