ONGC wants 'Cess' linked to price of crude

Vol 6, PW 25 (26 Feb 03) People & Policy

BIZARRE AS it might appear to foreign explorers entering India, ONGC and Oil India pay a fixed tax of Rs257 on every barrel of crude they produce, irrespective of the international price, be it $15 or $35 a barrel.

In India this tax is called 'Cess' and it only applies to ONGC and Oil India, the national oil companies. Private and foreign oil explorers escape this tax because they have what's known as a "fiscal stability clause" embedded in their PSCs.

Last year ONGC and Oil India felt particularly grieved when the 'Cess' they paid was doubled to Rs257 a barrel (Rs1, 800 per tonne). They claim the sharp hike in 'Cess' has hit their exploration plans, especiallyin "geologically complex (expensive) frontier basins and deepwater areas" that require high capital investment with "uncertain rewards".

Naik has taken note and is pressing the finance ministry to link 'Cess' to the international price of crude. ONGC and Oil India have prepared a detailed payment structure (below) to help Naik with their case.

Proposed Cess rates linked to price of crude Crude oil price Proposed Cess (Rs per barrel) Current Cess (Rs per barrel) $15 per barrel Zero Rs257 $15-$18 per barrel Rs57 Rs257 $18-$21 per barrel Rs86 Rs257 $21-$24 per barrel Rs128 Rs257 $24-$27 per barrel Rs185 Rs257 $27-$30 per barrel Rs257 Rs257 $30-$33 per barrel Rs342 Rs257 $33 and above Rs442 Rs257