Government to ask Vedanta to pick up tab for royalty and cess on Cairn's Barmer production
04 October 2010
According to analysts, the government seems to be exploring ways to extract its pound of flesh for allowing a smooth passage for the London-listed Vedanta Resources to gain control of Cairn India for around $10 billion.
They say, it seems, the government is considering getting Vedanta to pay its share of royalty and cess on crude produced from the Barmer acreage in Rajasthan, the biggest onland oil find in recent times, once it has taken control of the field.
ONGC with a 30-per cent stake in Barmer, foots all tax and royalty liabilities on the production in toto, including the share of Cairn. They add that this is a legacy of the policies of 1990s which were meant to attract foreign investment in exploration.
They cite norms to point out that ONGC, as the original licensee, would pay all taxes in acreages where a foreign company struck oil or gas. In the prevailing circumstances, wherein acreages are auctioned and domestic crude and international pricing are linked, the special dispensation imperils ONGC`s economic partnership in Barmer. The company would end up paying more money in taxes than its earnings from its share of the oil produced.
ONGC has sought the solicitor general of India's opinion on whether it would still be liable to pay royalty on Cairn`s crude from Rajasthan following the takeover. According to ONGC, the royalty exemptions were granted to compensate foreign companies against the risks involved in exploration.
ONGC's worry over the royalty burden has been a major hurdle in the consummation of the majority stake in its Indian arm to UK's Vedanta Resources.