ONGC puts new spin on Cairn-Vedanta deal
21 February 2011
State-owned Oil & Natural Gas Commission, whose concerns are blocking the purchase of Cairn India by Vedanta, has said it was never opposed to bearing the royalty burden for the Rajasthan oilfields, which are Cairn's main assets in India.
But at the same time, it wants to bring down its own burden by making royalty 'cost-recoverable' according to the contract signed for the field. In other words, it wants royalty paid for the fields to be included in the project cost when calculating profit-petroleum, according to a BusinessLine report.
Thus, the royalty burden would be shared by all stakeholders.
The paper cited an unnamed senior official as saying, ''ONGC wants that while calculating profit on petroleum, royalty should be factored in, and only then should profit-petroleum be distributed among the stakeholders - the government and the contractors (Cairn and ONGC), according to the production sharing contract.''
''Making royalty cost-recoverable will bring down the burden in the ultimate analysis,'' the official said.
According to the production-sharing contract for the Rajasthan fields, royalty was to be borne by the licensee of the fields, in this case ONGC. The applicable royalty rate for the block is 16.67 per cent on the net price of crude oil.