Cairn India believes its Rajasthan crude oil will get a better price in the international market and should be allowed to export.
“From our perspective, we strongly believe oil from the Rajasthan field will get higher price in the international market,” Tom Albanese, Chief Executive Officer, Vedanta Group, said.
At present, India does not allow export of domestically produced oil and gas as it is yet to attain self-sufficiency. “We have approached the Government with a plan to swap (crude) in such a way that there is no impact on the local oil supply and demand,” he told
Cairn’s Rajasthan crude is sold at a 10-11 per cent discount of Brent, because of its quality, and the recent steep drop in crude oil prices has hit the company’s profitability. For the third quarter (October-December 2014) of the current fiscal, Cairn’s crude was sold at a discount of 10.9 per cent to the average Brent price of $76 a barrel.
For the current quarter from January till February 13, Brent price has seen a fall of almost $26 barrel, averaging at $50.42 a barrel.
Swap planAccording to Cairn’s proposal, for each barrel of Rajasthan oil delivered to international buyer, an equal volume of imported crude would be offered to the domestic refiner at competitive terms. But according to Albanese, the company was open to look at the different ways for swapping.
“We are open to a flexible approach that will get the producer a higher price – closer to the world market price for very low sulphur and high waxy crude that is in demand with global refineries,” he added.
Selling Rajasthan crude at a discount is also not good for the Government – both central and state – as they earn less revenue, Albanese said. Last fiscal, because of local taxes, levies and royalty, the Governments got almost $0.5 billion less in revenues.
It also feels the Government needs to correct the existing disparity in the imported and domestic oil due to tax component on the latter.
“There is a need to create a better playing field. Between the discount and the sales tax effect, we are getting much less for our oil than someone sitting in West Asia or Africa would be if they sell their oil in India,” he said. “We want the Government to level the playing field by either avoiding stranded pricing or do something about the sales tax.”
The fall in crude oil prices has also compelled the company to review and re-engineer its projects. He also did not rule out the possibility of Cairn going into refinery business.
On the extension of Rajasthan production sharing contract, Albanese said the company was still awaiting Government clarification.