Why Rajasthan wants a share in profit petroleum

Vol 8, PW 1 (07 Apr 04) Exploration & Production

Chief minister Raje is clear why Rajasthan should get an equal share in the profit petroleum that now goes entirely to the federal government.

Of the several arguments she submits in support of her claim, a few stand out. For instance, hydrocarbons are a non-renewable and finite resource.

The state government has the right to exploit these mineral resources and so the cash flows coming in from them should be directed towards development activities in the state. Rajasthan supports this argument by pointing out that the Indian constitution says that while the federal government is owner of minerals found under the seabed within the countrys maritime zone, state governments are the owners of all inland minerals, including petroleum reserves.

We are told that federal laws such as the Mines and Minerals Act, Oilfields Act and the Petroleum and Natural Gas Rules, clearly recognise the ownership status of the states by giving powers to the states to grant mining leases and production leases. Raje adds that the powers of the federal government under the Indian constitution over onland hydrocarbons are limited to regulation and development of petroleum and natural gas and, in no way fetters the ownership rights of the state governments over onland oil and gas.

Therefore, financial benefits from the removal and consumption of minerals which are a wasting asset are exclusively in the state governments domain. The royalty payments that now go the states are not, argues Raje, adequate compensation for the permanent loss of minerals.

More, royalty rates are usually kept low and are not revised from time to time unlike the profit petroleum split (between the contractor and Delhi), which depends on the investment multiple in a particular year for the development area. Continues Raje: The only way available to adequately compensate states is by giving them a share in profit oil.