ONGC to appeal HC order to pay Rs10,000 crore

State-owned Oil and Natural Gas Corp (ONGC) today said it will appeal against a Gujarat High Court order asking it to pay up to Rs10,000 crore in past royalty dues, mainly to the Gujarat government.

The oil explorer says it cannot pay the levy on a price it hasn't realised.

''We have seen the judgement but certainly we will go for appeal (in the Supreme Court),'' ONGC chairman and managing director Sudhir Vasudeva said on the sidelines of the 8th Asia Gas Partnership Summit in New Delhi.

The Gujarat High Court had last week directed ONGC to pay royalty on crude oil on the gross price it bills to refiners. The company currently pays royalty on the net or actual price realised after allowing for fuel subsidy discounts.

Under a union government mandate, ONGC gives discounts on crude oil to make up for a part of the losses refiners suffer on selling diesel, cooking gas (LPG) and kerosene at government-controlled rates.

''How can we pay royalty on price which we have not even realised?'' Vasudeva said.

The company produces about 6 million tonnes crude oil per year from Gujarat and if the order is implemented, it will have to pay Rs9,000-Rs 10,000 crore in past dues from 2008.

''The implications are very big for us. We have to pay past arrears and then there will be recurring payments every year,'' he said. ''We haven't yet calculated the full impact but the arrears itself will be about Rs9000-Rs10,000 crore.''

A division bench of the high court comprising Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala had last month directed ONGC to pay differences in royalty on crude oil within two months and also pay royalty henceforth to the state government at market rate (gross billing price).

According to the Oil Field Act, ONGC is required to pay 20 per cent royalty on the price of crude oil it extracts from on-land oil blocks to the state governments.

Vasudeva said the implications of the judgement are grave as other states too may follow suit in demanding royalty at gross price.

ONGC till 2004 paid royalty on gross billing. But in that year, the union government asked it to provide crude to refiners like Indian Oil Corp Ltd (IOC) at discount under a subsidy burden-sharing mechanism.

Since then ONGC has paid royalty on the discounted price, resulting in reduction of royalty paid to Gujarat. The state has also complained to the centre in this regard.

In 2011, the state government filed a petition in the high court stating that it should be paid royalty at market rate.