Oil and Natural Gas Corporation will have a one time refund of around INR 1,600 crore this financial year from the royalty it had paid for the Barmer block.

According to the joint venture agreement with Cairn India, the state owned oil company was bearing the entire royalty burden, but the recent government intervention ensured that ONGC shares the profits from the block.

Mr DK Sarraf director (finance) told reporters that “In the last two years, we paid a royalty of INR 2,000 crore and recently the government decided the royalty should be cost-recoverable.”

While ONGC, as a licensee in the Barmer block, was obliged to bear the royalty burden, the accounting procedure in the production sharing contract said the royalty paid by the company was cost-recoverable from the common pool of revenue before profit for petroleum was calculated. The government intervened only after Cairn Energy announced the sale of a majority stake in Cairn India to Vedanta Resources.

ONGC insisted the royalty be treated as cost recoverable. In June, the government approved the stake sale in Cairn India to Vedanta on the condition that the company accepted treatment of royalty from the Barmer block. In addition to the royalty, the cess of INR 2,500 per tonne on Barmer output being paid by Cairn India will also have to be made cost recoverable.

(Sourced from BS)