Gujarat high court orders ONGC to pay Rs9,000 crore royalty to Gujarat government

Sunday, 1 December 2013 - 1:42pm IST | Place: Ahmedabad | Agency: DNA

Gujarat high court on Saturday directed the Oil and Natural Gas Commission (ONGC) to pay Rs9,000 crore as royalty to the Gujarat government within 60 days, setting aside the central government’s formula of calculating the royalty.

As per estimates, the state government may get over Rs10,000 crore as the high court has directed the ONGC to pay with interest and penalty. However, there was no official confirmation on the amount of royalty Gujarat is likely to get.

As per Oil Field Act of 1948, Gujarat government is entitled to get royalty at 20% from the fair price value of crude oil extracted from the oil wells and oil fields in state. Fair price value of crude oil is the price at which ONGC sells its crude oil to various oil refiners like Indian Oil Corporation or Bharat Petroleum Corporation. However, with an increase in crude oil prices, the centre changed the subsidy burden mechanism in the country.

As per the new mechanism, ONGC was allowed to sell crude oil with a discount in price to OMCs so as to keep the prices of refined products (petrol, diesel) under check.

But the royalty was paid without any discount in prices of crude oil. In 2008, ONGC started paying royalty based on post discounted prices. Sometimes, the discount component was as high as 90-95%. With a higher discount, the royalty income of the state government came down and thus it filed a petition before the high court against the ONGC and central government.

The Gujarat high court also set aside the formula of calculating the crude oil prices on post-discount rate and directed ONGC to deposit the royalty from 2008 to present on pre-discount or fair price value method.

“When we filed the application the amount of royalty difference between pre-discount and post-discount price of crude oil was around Rs6,000. It is likely to be around Rs9,000. There is also a provision of interest and penalty for late payment the state is entitled to get,” said Aspi Kapadia, senior government counsel.

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