New oil cess: ONGC, Cairn India upset with government | business | Hindustan Times
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New oil cess: ONGC, Cairn India upset with government

Fearing a huge impact on revenues, India's leading oil producers - ONGC and Cairn India - are up in arms against the government's decision to increase the current cess on oil production to Rs 4,500 per tonne from the current Rs 2,500 per tonne. Anupama Airy reports.

business Updated: Mar 21, 2012 21:49 IST
Anupama Airy

Fearing a huge impact on revenues, India's leading oil producers - ONGC and Cairn India - are up in arms against the government's decision to increase the current cess on oil production to Rs 4,500 per tonne from the current Rs 2,500 per tonne.

While ONGC is understood to have written a "strongly worded" letter to the petroleum ministry on Wednesday seeking withdrawal of this cess, India's largest private oil producer Cairn India, too, has approached petroleum minister Jaipal Reddy.

Cairn India CEO Rahul Dhir met Reddy on Tuesday to voice his concerns over the cess hike, petroleum ministry sources said.

While Cairn spokesperson refused comments, sources close to the company said the cess hike will cast a $2.5-billion (Rs 11,250-crore) impact on the revenue stream of the company over the life of the oil producing Rajasthan fields (till 2020). "The impact can be more with production estimates from the field going up," said sources.

The cess hike has come as a double whammy of sorts for Cairn India (recently acquired by NRI billionaire Anil Agarwal), as the company had recently agreed to pay cess and royalty on oil produced from the Rajasthan fields - as was sought by the government as a pre-condition to clear the Cairn-Vedanta deal. These pre-conditions, according to the company, would result in a revenue loss of $8 billion for Cairn India.

"Both ONGC and Cairn have represented to the ministry," a senior ministry official said.

"The cess hike will have a bearing on ONGC's revenues to the extent of Rs 5,000 crore per annum," RS Sharma, former CMD, ONGC, told HT.