States to get more royalty from ONGC and Oil India

THE Central Government on July 18 decided that oil producers would have to pay royalty to crude oil producing states such as Assam, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu at pre-discount rates.
"It has been decided that ONGC and Oil India will pay royalty to all similarly placed crude oil-producing states at pre-discount prices effective February 1, 2014, pending the outcome of the special leave appeal filed by ONGC before...
the Supreme Court," a petroleum ministry order said. Assam would be the biggest beneficiary of the latest oil ministry order, with a Rs 1,400-crore additional royalty income from ONGC and Oil India. Andhra Pradesh would gain by Rs 72 crore in additional royalty from ONGC.
The order implies that ONGC and Oil India are faced with an additional royalty burden of more than $1 billion, senior ministry sources was quoted as telling.
In this connection Petroleum Minister Dharmendra Pradhan has said: "We have decided Assam and oil-producing states will get additional royalty from ONGC and Oil India. Assam might get above Rs 1,400 crore."
ONGC has appealed in the Supreme Court against the Gujarat High Court order to pay Rs 10,000 crore to the state. In February 2014, the apex court stayed the high court order, but told ONGC to pay royalty at the pre-discount price starting that month.
The government decision now means ONGC and Oil India would have to pay royalty to states based on their gross realisation on crude sales and not on the net price.
It is the difference between gross and net price that is the subsidy burden borne by producers to compensate state-run oil marketing companies (OMCs) for selling sensitive petroleum products at below cost. From April 2003, ONGC started paying royalty to the central government for its offshore fields at the post-discount price, while for onshore fields, it paid royalty on the pre-discount price.
Oil producing states like Assam have been demanding more royalty on oil and there were agitations demanding more share.
Assam has been witnessing protests since June 25 when union minister of state for petroleum Dharmendra Pradhan had announced the Centre’s decision to auction 12 small Assam oilfields that have been lying idle for years. “This would bring investments worth Rs 4000 crores to Assam and generate jobs,” the minister had said.
Now, Centre’s decision to hike royalty may pacify these agitating sections.
They are demanding that instead of private companies, PSUs like Oil India Ltd and ONGC should explore those oilfields. The government should provide necessary funds to OIL and ONGC so that the PSUs could themselves explore these oilfields, they argued.