Rae likes ONGC idea for marginal fields

Vol 17, PW 1 (08 Aug 13) People & Policy

Without attractive commercial terms why waste time bidding for an ONGC marginal field service contract ONGC is preparing to offer 26 marginal fields for development but first it wants the government to exempt contractors from a crippling $56/barrel subsidy burden fixed in October 2012.

Assume international crude at $100/barrel and ONGC would charge refiners $44/barrel, taking a $56/barrel hit. This is to compensate IndianOil, Hindustan and Bharat Petroleum for selling subsidised kerosene, LPG and diesel to the public.

“Vivek Rae supports us,” says an ONGC source, referring to the oil secretary. “In June we made a presentation to him and he asked us to submit a ‘note’.

" ONGC also wants the government to halve its royalty payments from marginal fields and offer a seven-year tax holiday. ONGC today pays 20% royalty on onland marginal fields and 10% on offshore fields.

“We explained to Rae the importance of developing marginal fields,” adds ONGC. “Even if the government doesn’t earn much revenue India will reduce its import bill substantially from marginal field production.

” Earlier this year ONGC thought it had nailed the right formula for its marginal field contracts: pay international crude prices to service contractors on condition they pay 30% of revenues to ONGC and a proportion of royalty, 'cess' and other production taxes. But ONGC's Executive Purchase Committee (EPC) axed the proposal in February 2013.

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