ONGC to get Rs 1,600-cr royalty refund

Oil and Natural Gas Corporation will have a one-time refund of around Rs 1,600 crore this financial year from the royalty it had paid for the Barmer block.

According to the joint venture agreement with Cairn India, the state-owned oil company was bearing the entire royalty burden, but the recent government intervention ensured that ONGC shares the profits from the block.

“In the last two years, we paid a royalty of Rs 2,000 crore and recently the government decided the royalty should be cost-recoverable,” director (finance) D K Sarraf told reporters. While ONGC, as a licensee in the Barmer block, was obliged to bear the royalty burden, the accounting procedure in the production sharing contract said the royalty paid by the company was cost-recoverable from the common pool of revenue before profit for petroleum was calculated. The government intervened only after Cairn Energy announced the sale of a majority stake in Cairn India to Vedanta Resources.

ONGC insisted the royalty be treated as cost-recoverable. In June, the government approved the stake sale in Cairn India to Vedanta on the condition that the company accepted treatment of royalty from the Barmer block. In addition to the royalty, the cess of Rs 2,500 per tonne on Barmer output being paid by Cairn India will also have to be made cost-recoverable.

Cairn India agreed to the conditions and sought a no-objection certificate from ONGC. “We will take it up with our board after we get a letter from Cairn,” said Chairman and Managing Director A K Hazarika.

ONGC’s follow-on public offer, where the government plans to hive off five per cent (427.77 million shares) stake, may to hit the market next month.

ONGC’s follow-on public offer is likely to hit the market next month. “The ONGC board has approved the red herring prospectus yesterday, which will be filed according to the instructions of the government,” said Hazarika.

The FPO was originally planned in 2010-11, but was deferred to April 5 because the company did not have an adequate number of independent directors to meet market regulator’s listing norms. It was then rescheduled for July 5, but was again deferred due to adverse market conditions. “We are confident the response from investors will be overwhelming,” he said.