Budget to fill gap in oil royalty payments to states

The centre on Wednesday decided to make payment of differential royalty on crude oil production through budgetary allocation for the production sharing contracts awarded to discovered fields located in Arunachal Pradesh, Assam and Gujarat.

Operators of some 28 fields in Gujarat, Assam and Arunachal Pradesh pay royalty at the capped rate in their production sharing contract awarded by the government to different companies during the years 1994-95, 2001 and 2004.

The payment of differential royalty will be through budgetary allocation instead of through Oil Industry Development Board (OIDB) fund from the year 2015-16 onwards.

This will involve an expected expenditure of Rs56 crore for the year 2015-16, which include Rs30 crore for Arunachal Pradesh and Rs26 crore for Gujarat (assuming average crude oil price of $50 a barrel).

While this will have a financial implication on government budgetary allocation, the outflow from OIDB will be reduced accordingly.

Currently, state governments are getting royalty based on the Oilfields (Regulation & Development) Act, 1948 and Petroleum & Natural Gas Rules, 1959 and the differential royalty is being paid by OIDB.

The standing committee on petroleum and natural gas, while examining the functioning of OIDB, recommended that differential royalty to the state government concerned may be made through budgetary allocation, in order to ensure proper utilisation of OIDB fund.