Cairn shouldn't have moved Delhi HC in a hurry: Pradhan

Oil minister says govt will take appropriate action on extension of the company's licence

Cairn India should not have moved the Delhi High Court over extension of production sharing contract (PSC) for its Rajasthan block in such a hurry, oil minister Dharmendra Pradhan said on Tuesday. He said the government would take “appropriate action in the overall interest of the country” and due diligence would be followed to respond to the issue over Barmer block – India’s largest onshore oil discovery.

The Vedanta-owned firm — India’s largest private sector oil explorer — had moved the High Court last Friday seeking early decision on the extension of its Rajasthan PSC that expires in 2020, as well as higher price for its crude oil. The High Court issued directions to the Centre, Cairn India and its partner ONGC before listing the case for further hearing on April 6, 2016. The PSC for the Barmer block provides for extension of the licence by five years in case it has oil-producing fields and by 10 years in case of a gas field. The contract allows extension on “mutually agreeable terms”. A senior official close to the development told Business Standard there was no need for the company to approach the court. “There has been no inaction or lull on the part of the government in pursuing Cairn’s demand for extension. In fact, there was no issue as the contract is valid for five more years.”

The company had sought extension of the PSC on the same terms and conditions. According to the law ministry, the terms and conditions of the PSC can be re-negotiated based on the provisions of the contract. A committee headed by the Directorate General of Hydrocarbon has recommended 10-year extension on revised terms and conditions. The panel - set up to look into extension of PSCs of small, medium-sized and discovered fields awarded to private firms in the 1990s - recommended contracts be extended for 10 years for oil & gas fields or the remaining economic life of the field, whichever is earlier. The oil ministry has recommended switching over to ad-valorem rates for levy of cess on crude oil production from the current fixed rate of Rs 4,500 per tonne, Pradhan said. With global oil prices plummeting to 11-year low of $35 a barrel, the sector had been lobbying for a cut in the cess or making it ad-valorem.

The oil ministry wants cess to be levied at less than eight per cent of the price of crude realised.

The Oil Industry (Development) Act, 1974, provides for collection of cess as a duty of excise on indigenous crude oil. The levy is not recoverable from refiners and forms part of cost of production of crude oil.