ONGC asks govt to cut cess, royalty, free gas price to help company survive

India’s prime oil and gas producer ONGC has sent an SOS to the govt looking

India’s prime oil and gas producer ONGC has sent an SOS to the govt looking for a slice in taxes as properly as getting granted pricing and internet marketing freedom for gas to assistance it weather the slump in rates that has produced sustaining operations difficult and may drive a slice in investments.

The slump in intercontinental oil rates to minimal-20s ($/barrel) and organic gas rates falling to a 10 years minimal of $ two.39 for every million British thermal unit is threatening to drive the enterprise into earning money-losses on a monthly foundation, resources with immediate know-how of the growth mentioned.

Whilst the gas selling price is way underneath the charge of production, superior tax incidence is resulting in money losses even on crude oil output.

Condition-owned Oil and Normal Gasoline Corp (ONGC) very last month wrote to the govt looking for abolition of oil cess if selling price realised by producers is considerably less than $ 45 for every barrel. Also, it desires the 20 for every cent of selling price compensated as royalty to point out governments be halved.

At this time, the govt levies 20 for every cent advertisement-valorem cess on the selling price that producers get. Also, ONGC/OIL are needed to pay 20 for every cent royalty on the selling price of crude oil it extracts from onland oil blocks to the point out governments.

Resources mentioned ONGC desires the formulation of pricing domestically developed organic gas at fees commonplace in gas-surplus nations these kinds of as US and Russia. The fees making use of the formulation arrived to $ two.39 for every million British thermal unit from April.

This selling price is the least expensive that the enterprise will realise given that 2010 when the govt had moved toward deregulating gas pricing.

In May 2010, the Cupboard had authorised an Oil Ministry proposal to increase the fee of gas sold to electric power and fertilizer corporations from $ 1.seventy nine for every mmBtu to $ 4.20.

ONGC and OIL obtained $ three.818 for every mmBtu selling price for the gas they developed from fields specified to them on nomination foundation and right after including 10 for every cent royalty, the gasoline charge $ 4.20 for every mmBtu for consumers.

The Congress-led UPA had authorised a new pricing formulation for implementation in 2014 that would have elevated the fees but the BJP-led govt scrapped it and introduced a new formulation.

The BJP-led govt had in Oct 2014 adopted a formulation that normally takes into account the quantity-weighted annual regular of the rates prevailing in Henry Hub (US), Nationwide Balancing Place (United kingdom), Alberta (Canada) and Russia with a lag of 1-quarter. Rates are set every six months — on April 1 and Oct 1 just about every 12 months.

Resources mentioned OID cess, which has elevated from $ three to $ thirteen in excess of the many years, is triggering a ton of tension on current and new oil and gas initiatives.

OID Cess is levied on crude oil developed as excise responsibility beneath the Oil Industries (Improvement) Act of 1974. The cess is getting levied on crude oil from nominated blocks and pre-NELP exploratory blocks only.

The OID cess was elevated from Rs two,five hundred for every tonne to Rs 4,five hundred for every tonne in March 2012. The selling price of the Indian basket of crude oil stood at around $ 110 for every barrel then.

With the slide in world-wide crude oil rates in mid-2014, providers requested for lowering the levy and converting it into 8-10 for every cent advertisement-valorem. The govt had modified the levy of the cess to 20 for every cent advertisement-valorem in March 2016.

Resources mentioned ONGC has communicated to the govt that the current fee of taxes is threatening to drive the company into money losses and will impression its planned capex.

Unless profits are produced, long term investments are at a possibility, they mentioned, including ONGC fields are outdated and earlier their prime and it would be a “huge, huge blunder” to think they would behave as they did a 10 years back without the need of investments in pulling up restoration fees.

Resources mentioned cutting the cess fee will make in excess of 200 million barrel of oil equivalent of production feasible at the complete market degree.