The Hindu Business Line : `Cairn Energy has to pay production cess'

THE Law Ministry has ruled that Cairn Energy of the UK will have to pay a cess on the crude oil it plans to produce from Barmer district in Rajasthan, setting to rest the dispute over the issue.

"Cairn has no choice but to pay the cess when they start production of crude oil as per the advice given by the Law Ministry," a senior Petroleum Ministry official said.

During a meeting held recently, the Ministry has also decided to seek a "clear written commitment from Cairn Energy" that it will pay-up the cess.

"Otherwise, we will be forced to transfer the entire fields to ONGC," he cautioned.

While Cairn is the operator of the field, the state-owned ONGC is the licensee.

The British company plans to produce 80,000 to 1,00,000 barrels per day of crude from its Mangala and Aishwariya fields in Barmer, where it has reported an "in-place oil reserve of over 300 million barrels".

But, it had opposed the payment of a cess of Rs 900 per tonne of crude oil produced from the two fields, claiming that the Rajasthan block was a "pre-NELP (New Exploration Licensing Policy) block where ONGC was made responsible, as the licensee, for payment of all statutory dues such as royalty and cess.

The Petroleum Ministry had referred the dispute to the Law Ministry for its advice and opinion.

According to the Petroleum Secretary, Mr S.C. Tripathi, the production sharing contract (PSC) for the Rajasthan block had clearly mentioned that royalty will be paid by ONGC but was silent on the payment of production cess.

"Naturally, the cess is to be paid by the producers. Cairn and ONGC are partners in Mangala and Aishwariya fields and they will have to pay the cess in proportion to their shareholding," he stated. On top of this, ONGC will also have to pay royalty to the Government.

ONGC had recently exercised its "walk-in" rights (after being persuaded by the Government) to take a 30-per cent stake in the two fields Cairn plans to put on production.

Though the oil finds in Rajasthan are the largest in more than two decades, ONGC was reluctant to exercise its right to take a 30-per cent stake in the block as this would have forced the PSU to make payment of statutory dues of royalty not just by itself but also on behalf of its private sector partner.

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