Panel Moots Sliding Royalty For Domestic Crude

The high-powered Mauskar Committee has recommended sliding royalty rates for domestic crude after April 1, following the dismantling of the administered pricing mechanism (APM) dismantling in the petroleum sector.

The committee has suggested, for crude produced onshore, royalty may be paid at 18 per cent in 2002-03. Thereafter, the rate will decline at 1 per cent annually till the beginning of 2006-07. In 2006-07, it will go down by 1.5 per cent to end at 12.5 per cent, applicable under the new exploration licensing policy (NELP).

Similarly, for crude produced from shallow offshore areas, royalty may be paid at 18 per cent of the well-head price for 2002-03. Subsequently, the rates will decline by 1.5 per cent annually till the beginning of 2006-07.

It will decline by 2 per cent in 2006-7 and converge with the NELP rate of 10 per cent by the beginning of 2007-08.

To arrive at well-head prices, the committee has recommended a deduction of 7.5 per cent of the market price of onshore crude, and 10 per cent for offshore crude.

For production at a depth of 400 metres and below, the committee has recommended half of the royalty rates for shallow water areas in the first seven years.

Regarding heavier crude oils, the committee has recommended a further reduction of 2.5 per cent from the rates in force.

The committee has said cess will not be relevant for price determination in the deregulated regime. This is because royalty will be determined by well-head prices, derived from the import parity price.

The committee says inter-state differentials are not desirable. However, in the case of states like Nagaland, grants may be considered.

It has recommended reduced rates of royalty under the enhanced oil recovery scheme. An improved oil recovery scheme can be considered depending upon the required investment. "This will require consultations between the lessee and the lessor. Exact modalities for this may be worked out separately," a committee statement said.

The committee says there is no need to set up an independent agency only for the determination of the normative price of crude. It believes it is not feasible to make royalty payments to the states and the Centre in kind.