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ONGC asks govt to waive cess, royalty as plummeting oil costs not sufficient to cowl working value

Sources mentioned ONGC has communicated to the federal government that the present price of taxes is threatening to push the agency into money losses and can impression its deliberate capex.

State-owned ONGC has requested the federal government to waive cost of oil cess and royalty as plummeting worldwide oil costs have meant that the speed it now will get doesn’t even cowl the working value, sources mentioned. While the hunch in worldwide oil costs to greater than two-decade low is nice information for gasoline customers, it’s spelling financial havoc on oil and gasoline producers.

Sources mentioned Oil and Natural Gas Corp (ONGC) administration has instructed the federal government its common worth realization of USD 22 per barrel in April will not be sufficient to cowl even the working value. On prime of it, the drop in pure gasoline costs to a decade low of USD 2.39 per million British thermal unit is resulting in a lack of about Rs 6,000 crore yearly.

ONGC, sources mentioned, has requested the federal government to abolish oil improvement cess if worth realized by producers is lower than USD 45 per barrel. It additionally desires royalty that the central authorities prices on oil and gasoline produced from the offshore space to be waived.

The firm has to date maintained a capex of Rs 30,000-34,000 crore in the previous couple of years however the present costs don’t generate sufficient surplus to cowl even working expenditure or opex. Currently, the federal government levies 20 per cent ad-valorem oil trade improvement (OID) cess on the worth that producers get. Also, ONGC/OIL are required to pay 20 per cent royalty on the worth of crude oil it extracts from onland oil blocks to the state governments. ”

The central authorities prices 10-12.5 per cent royalty on oil produced from offshore areas. Sources mentioned the corporate desires the royalty charged by the central authorities to be waived for now. It additionally desires the method of pricing domestically produced pure gasoline at charges prevalent in gas-surplus nations such because the US and Russia. The charges utilizing the method got here to USD 2.39 per million British thermal unit (mmBtu) from April.  This worth is the bottom that the corporate will understand since 2010 when the federal government had moved in the direction of deregulating gasoline pricing.’

”In May 2010, the Cabinet had authorised an Oil Ministry’s proposal to boost the speed of gasoline bought to energy and fertilizer corporations from USD 1.79 per mmBtu to USD 4.20.” Sources mentioned OID cess, which has elevated from USD three to USD 13 over time, is inflicting numerous stress on present and new oil and gasoline initiatives.

OID cess is levied on crude oil produced as excise obligation underneath the Oil Industries (Development) Act of 1974. The cess is being levied on crude oil from nominated blocks and pre-NELP exploratory blocks solely. The OID cess was raised from Rs 2,500 per tonne to Rs 4,500 per tonne in March 2012. The worth of the Indian basket of crude oil stood at round USD 110 per barrel then.

With the autumn in world crude oil costs in mid-2014, corporations have been requested for lowering the levy and changing it into 8-10 per cent ad-valorem. The authorities had modified the levy of the cess to 20 per cent ad-valorem in March 2016.

Sources mentioned ONGC has communicated to the federal government that the present price of taxes is threatening to push the agency into money losses and can impression its deliberate capex. Unless income are made, future investments are at a threat, they mentioned, including ONGC fields are previous and previous their prime and it might be a “big, big mistake” to imagine they’d behave as they did a decade again with out investments in pulling up restoration charges.

Sources mentioned chopping the cess price will make over 200 million barrel of oil equal of manufacturing viable on the total trade degree.

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