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A Group of Ministers that went into the Cairn Energy-Vedanta Resources deal wants Cairn and Vedanta to bear the royalty burden for the Rajasthan oil fields, if the deal is to be cleared.
ONGC now pays the entire royalty.
This is an endorsement of the Petroleum Ministry's condition for approving Cairn Energy's proposal to sell up to 51 per cent in Cairn India to Vedanta Resources, according to officials privy to the development.
The Cabinet Committee on Economic Affairs will take a final decision on the deal. The GoM recommendations will be placed before the CCEA.
ONGC, which owns 30 per cent of the field, started paying royalty from September 2009 when production started. The production sharing contract for the field runs till 2020.
Earlier, the CCEA had referred the matter to a GoM. The GoM was to consider issues such as the differences between ONGC and Cairn on the royalty being paid by ONGC for the pre-NELP Rajasthan oil fields, and the dispute on cess being paid under protest by Cairn for the fields.
The Petroleum Ministry had recommended to the CCEA that the Government may consider granting consent provided Cairn-Vedanta agree to share the royalty burden. It also wanted Cairn to withdraw the cess arbitration cases.
Cairn does not agree to both these conditions. The Petroleum Ministry has been maintaining that ONGC's interests need to be protected. ONGC has been claiming to make the royalty cost recoverable much before the deal was announced, an official added. Cairn holds 70 per cent stake in Rajasthan block and ONGC the balance.
ONGC, as the licensee of the Rajasthan block, has to bear 100 per cent royalty burden. According to provisional calculation the total royalty burden over the project life is Rs 18,000 crore. Of this ONGC has to bear Cairn's share of approximately Rs 12,600 core.
Citing accounting procedures, ONGC has been saying royalty is cost recoverable. In other words the royalty burden is distributed among all stake-holders.
As regards cess, Cairn has been paying it under protest. The cess is to be paid at the rate of Rs 2,650 a tonne of crude. Cess has to be borne by the producer, which in this case is Cairn.
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