ONGC to lose Rs 14,000 cr in Cairn's Rajasthan block

State-run Oil and Natural Gas Corporation (ONGC) today said it will lose about Rs 14,000 crore if it is forced to continue in Cairn India's prolific Rajasthan oilfields as it will have to pay for all of the government levies.      

The government has appointed ONGC as the licencee for Cairn's RJ-ON-09/1 block, making it liable to pay royalty to the state government and cess to the Centre on entire oil and gas production irrespective of whether it holds any stake in the field or not. As a consolation, the state-run firm was given a choice of taking 30 per cent stake once oil or gas was found.     

ONGC took 30 per cent in Mangala, Bhagyam and Aishwariya fields in the block but it now wants to exit as the obligation to pay all the levies had made the project economically unviable, a top company official said.     

"If crude oil is sold at $60 a barrel price, ONGC will have to pay $7.44 in cess (at the rate of Rs 2,500 per tonne), $36 in royalty (for its and Cairn's share) and $10.34 per barrel in profit petroleum, leaving $6.22. Out of this, ONGC will have to pay for operating and capital expenditure and sales tax on its 30 per cent share," he said.      

The official said exiting the Rajasthan block would not end its woes as it would not be absolved from its obligation to pay government levies on the crude oil produced.      

"We want the Government to compensate us for the levies we will pay on behalf of Cairn," he said.      

The Government, in order to attract foreign investment, had promised to take care of statutory levies on oil and gas production when it awarded blocks like RJ-ON-90/1 in Rajasthan more than a decade ago.      

ONGC was appointed licensee for RJ-ON-09/1, which was awarded to Royal Dutch Shell, which subsequently sold it to Cairn, and was made liable to pay royalty and cess on behalf of the operator. Additionally, the state-run firm was given a choice of taking a 30 per cent stake upon a discovery.      

"Even if ONGC (is) to relinquish its 30 per cent stake, it will not be absolved of its liability to pay 20 per cent royalty on all crude oil produced from the Rajasthan block," a Petroleum Ministry official said.      

If ONGC is relieved of its licence obligation, the onus of paying royalty will fall on the central government, which can make the payment from its share of oil and gas from the block called profit petroleum.      

Besides the levies, ONGC has to bear 30 per cent of the $2.4-billion cost of developing the fields. 

At $70 a barrel sale price, the realisation after paying for cess, royalty and profit petroleum was just $5.78, he said. "The project offers us negative return and over the life of the field we will end up losing Rs 14,000 crore."