Lok Sabha Question No. 2440 (UNSTARRED), answered on 2016-05-09
Subject: Royalty on Crude Oil
Ministry: PETROLEUM AND NATURAL GAS
Asked by: KIRIT PREMJIBHAI SOLANKI

2440

## LOK SABHA UNSTARRED QUESTION NO. 2440 TO BE ANSWERED ON 9.5.2016

## ROYALTY ON CRUDE OIL

DR. KIRIT P. SOLANKI:

## पेट्रोलियम एवं प्राक ृ तिक गैस मंत्री

## Will the Minister of PETROLEUM & NATURAL GAS be pleased to state:

- (a) whether the royalty on crude oil and gas is paid to the State Government based on the Wellhead price of crude oil and if so, the details thereof;
- b) whether the upstream, companies including Oil and Natural Gas Corporation Limited (ONGC) are unilaterally paying the royalty to the States on post-discounted prices;
- (c) if so, the details thereof and the reasons therefor, State/UT/company-wise;
- (d) whether the State Government of Gujarat has represented to the Union Government for payment of royalty as per the established mechanism and on pre-discounted prices; and
- (e)      if so, the details thereof along with action taken by the Government thereon and the outcome thereof?

## ANSWER

## पेट्रोलियम एवं प्राक ृ तिक गैस मंत्रािय में राज्य मंत्री ( स्विंत्र प्रभार ) ( श्री धमेन्द्र प्रधान )

## MINISTER OF STATE IN THE MINISTRY OF PETROLEUM & NATURAL GAS (INDEPENDENT CHARGE) (SHRI DHARMENDRA PRADHAN)

- (a):  Royalty  on  production  of  crude  oil  is  payable  to  the  Central  Government  (for  production  from offshore  fields)  and  to  the  State  Government  (for  production  from  onshore  fields)  in  terms  of  the statutory provisions of Oilfields (Regulation and Development) Act, 1948 (ORDA) and  Petroleum & Natural Gas (PNG) Rules, 1959 as amended  from time to time.

The current schedule of royalty rates is attached at the Annexure.

- (b) & (c): Upstream companies, including ONGC, have been paying royalty to the State Governments on post discounted price from 1 st April, 2008 as per direction of Government of India communicated to them vide Ministry of Petroleum & Natural Gas letter dated 23.5.2008.
- (d) & (e): The State Government of Gujarat has represented to the Government of India on the issue of payment of  royalty.    After  examination,  Government  of  Gujarat  was  informed  on  07.07.2009  that  in respect of offshore crude oil, the Royalty paid by upstream companies to the Central Government has always been on the basis of post-discount prices. There is nothing in the legal provisions to suggest that payment of onshore Royalty to State Governments should be on a different principle.

Government of Gujarat filed a Special Civil Application in the High Court of Gujarat, Ahmedabad on 27 th September, 2011 for payment of royalty at pre-discount prices. Gujarat High Court, vide its order dated 30 th November, 2013  decided that royalty on crude oil is to be paid on pre-discount price and directed ONGC to make the payment towards shortfall royalty for the period April, 2008 till date, within a period of two months from the date of issue of order.

Aggrieved by the order, ONGC filed a Special Leave Petition(SLP) before the Supreme Court of India. Pending further orders, the Hon'ble Court stayed the operation of the impugned judgment subject to the condition  that  ONGC  pays  royalty  to  State  of  Gujarat  on  pre-discounted  price  of  crude  oil  w.e.f.  1 st February, 2014 onwards.  In compliance of court order, ONGC has started paying royalty to Govt. of Gujarat on pre-discount price w.e.f. February, 2014.

## Schedule of Royalty rates on crude oil production and natural gas production

## A) Crude Oil/Casing Head Condensate Production:

|               | Nomination./Pre NELP PSCs                                                       | NELP PSCs                                                                     | Discovered fields PSC                                                                                                                                                                                                                                                                                                                                                                    |
|---------------|---------------------------------------------------------------------------------|-------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ON-Land       | 20% of well head price on cum-royalty basis                                     | 12.5% of well head price on ex-royalty basis                                  | The rates of royalty were Rs.481 per MT for first round and Rs.528 per MT for second round respectively in the discovered fields as guaranteed under the PSCs. However, State Governments are taking royalty based on ORDA and P&NG Rules and the additional royalty (difference between the rates as per PSC and 20% of well head price on crude oil production) is being paid by OIDB. |
| Shallow Water | 10% of well head price on cum-royalty basis                                     | 10% of well head price on ex-royalty basis                                    | The rates of royalty were Rs.481 per MT for first round and Rs.528 per MT for second round respectively in the discovered fields as guaranteed under the PSCs. However, State Governments are taking royalty based on ORDA and P&NG Rules and the additional royalty (difference between the rates as per PSC and 20% of well head price on crude oil production) is being paid by OIDB. |
| Deepwater     | 5% of well head price for 1 st 7 years and 10% thereafter on cum- royalty basis | 5% of well head price for 1 st 7 year and 10% thereafter on ex-royalty basis. | The rates of royalty were Rs.481 per MT for first round and Rs.528 per MT for second round respectively in the discovered fields as guaranteed under the PSCs. However, State Governments are taking royalty based on ORDA and P&NG Rules and the additional royalty (difference between the rates as per PSC and 20% of well head price on crude oil production) is being paid by OIDB. |

- B) Natural  gas  production  are  10%  of  well  head  value  for  onland  and  shallow  water  areas applicable  uniformly  for  all  regimes  i.e.  nomination,  pre-NELP,  discovered  fields  and  NELP regimes.  In deepwater areas under NELP, royalty of 5% of well head price for first 7 years and 10% thereafter on ex-royalty basis is applicable.

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