Niko and GSPC in tax row with IOC for Gujarat crude

Vol 7, PW 9 (16 Jul 03) Exploration & Production

A POINTLESS nine-year old sales tax dispute with Indian Oil is turning out to be a major irritant for Niko Resources and its partner Gujarat Petroleum.

At stake is who pays the sales tax for the crude Niko and GSPC sell to Indian Oil from their four onland fields: Bhandut, Sabarmati, Cambay and Hazira. Normal commercial practice in India dictates that the buyer and not the seller should pay sales tax.

Surprisingly, Indian Oil does not believe in playing by normal commercial practice when it deals with Niko and GSPC. Ever since Niko and GSPC began producing from Bhandut field in September 1994, Indian Oil has deducted sales tax from the crude oil price it pays the consortium.

This amount has accumulated to about Rs1cr ($220,000). Disagreement with IOC has begun to poison Niko's discussions over a separate Crude Oil Sales Agreement (COSA) with ONGC.

Because unless IOC agrees to pay, operator Niko and GSPC areunwilling to sign the COSA with ONGC. And unless the COSA is signed, ONGC is unwilling to let Niko construct and use crude storage tanks at the Navagam tank farm, the delivery point allotted to the Sabarmati oilfield, which began producing crude in April this year.

As a back up solution, Niko has negotiated a deal to use ONGC storage tanks at North Kathana, should production from Sabarmati be hit due to the absence of a COSA. "Transport of crude oil to North Kathana is very expensive to us because it is about 100-km away from Sabarmati," reveals Niko.

North Kathana, however, is inadequate to store Sabarmati crude due to the slow "custody transfer" process. Matters reached a head on 7th June when Niko was forced to suspend production of crude at Sabarmati for about a fortnight as the tanks at Sabarmati and at North Kathana were filled to the brim.

Exasperated at this turn of events, GSPC wrote to Shastri Bhawan late last month seeking its, "intervention in terms of not only finalising the COSA agreement, which is dependent on resolution of reimbursement of sales tax by IOC but also timely custody transfer at ONGC facility." Continued GSPC: "It would be advisable that ONGC allows GSPC-Niko to create the necessary infrastructure at Navagam tank farm for storage and custody transfer of our crude oil pending finalisation of COSA."

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