Finmin turns down oil ministry plea for Rs 1 lakh cr cess pool

Nov 25 2013, 08:49 IST
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SummaryThe finance ministry has once again turned down the oil ministry’s request to release the R1 lakh crore

The finance ministry has once again turned down the oil ministry’s request to release the R1 lakh crore of accumulated cess collected from the oil industry over the years. The impost, which has been levied since 1974-75, and is borne largely by Oil and Natural Gas Corporation (ONGC), is meant for the development of the oil sector and should have been transferred to the Oil Industry Development Board. However, the finance ministry continues to transfer the money to the consolidated fund of India to meet other funding needs and exigencies of budget management.

“We have made several requests to the finance ministry, including twice this year for the release of these funds to OIDB. However, the finance ministry argues that since the government bears a part of the subsidy burden, the funds will needed,” a senior oil ministry official said, adding that they did not expect the money in a fiscally constrained year.

The funds could have come in handy since only nine out of India’s 26 sedimentary basins produce hydrocarbons and around 45% of the basin area is either poorly explored or altogether unexplored. Indeed, a third of the $15-billion (R1 lakh crore) or roughly $3 billion would have been adequate to survey 3.14 million sq km of sedimentary basins in the country, given that it costs about $1,000 per sq km to conduct 3D seismic studies.

The resources, experts point out, could also have been used to explore and de-risk deep waters beyond the 200 m isobaths (an imaginary line connecting all points at the same depth) — an area where Indian companies have little experience.

Moreover, the money could have been spent on developing an indigenous services sector to facilitate exploration — the cost of drilling a well in India is twice as high as in the US because of the lack of supporting services.

The government has so far released just Rs 902.4 crore of the cess collected of close to Rs 1.10 lakh crore and starting 1992-93, no funds have been allocated to OIDB. “Even this Rs 900 crore is lying in bank deposits,”said an oil company official in the know.

The oil cess of Rs 4,500 per tonne — hiked from Rs 2,500 per tonne in the last fiscal — under the OIDB Act is applicable only to blocks or acreages given before the New Exploration Licensing Policy regime to nominated national oil companies (NOCs) where the licensee is one of the NOCs. The cess is not levied on production from NELP blocks..

The affected parties are public sector majors ONGC and Oil India Limited (OIL), which hold nomination and pre-NELP blocks. Cairn India is the only private company that is paying a cess as a contractor under a pre-NELP block in Rajasthan. In 2012-13, ONGC contributed Rs 9,997 crore while Cairn paid Rs 2,808 crore and OIL around Rs 1,800 crore.

The Comptroller and Auditor General of India, in its audit report on the accounts of the OIDB for the year ended March 31, 2012, pointed out that the government failing to transfer the cess to OIDB is not in conformity with the objective of the establishment of OIDB and levy of excise duty under the provisions of the OID Act 1974.

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