HC asks ONGC to pay royalty dues worth Rs 5K-6K cr to Guj govt

Company is required to pay 20% royalty of the market value of crude oil it extracts from oil blocks to the state govt

Gujarat High Court has directed Oil and Natural Gas Corporation (ONGC) to pay dues worth Rs 5,000 crore to Rs 6,000 crore to the state government towards differences in royalty of crude the PSU has extracted since 2008.

A division bench headed by Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala yesterday directed ONGC to pay differences in royalty of crude within two months and also pay royalty, henceforth, to state government at market rate.

According to the Oil Field Act, ONGC is required to pay 20% royalty of the market value of crude oil it extracts from oil blocks to the state government.

ONGC used to pay such royalty to the Gujarat government but, in 2004, the Union government asked it to provide crude to Indian Oil Corporation Limited (IOCL) as burden-sharing mechanism, at a discounted rate because IOCL was offering subsidies on diesel, kerosene and Liquefied Petroleum Gas (LPG) to consumers, resulting in huge losses to the latter.

Since ONGC started providing crude to IOCL at a discounted rate, it started paying royalty to the state government at post-discount rate, resulting in drastic reduction in royalty to Gujarat. The state also complained to the Centre in this regard.

In 2011, the state government filed a petition before the High Court, stating that it should be paid royalty at market rate and the difference in royalty payment since 2008 at pre-discount rate (in comparison to market rate) was computed at Rs 5,000 crore to 6,000 crore.

State government counsel Aspi Kapadia informed the court that ONGC, at times, provided crude to IOCL at a huge discount of 96%, which resulted in huge downfall in royalty payment to the state. The state, he argued, must be paid royalty at market price.

Directing ONGC to make payment of differences of royalty to the state within two months, the court also asked it to pay royalty, in future, at market rate.