State-run explorer Oil and Natural Gas Corp (ONGC) stock fell nearly 5 percent on Monday following the government decision that oil producers would have to pay the royalty to crude oil producing states such as Assam, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu at pre-discount rates.
“It has been decided that ONGC and Oil India will pay a royalty to all similarly placed crude oil-producing states at pre-discount prices effective February 1, 2014, pending the outcome of the special leave appeal filed by ONGC before the Supreme Court,” a petroleum ministry order said on Friday.
The order implies that ONGC and Oil India are faced with an additional royalty burden of more than $1 billion, senior ministry sources said
In this connection Petroleum Minister Dharmendra Pradhan has said: “We have decided Assam and oil-producing states will get an additional royalty from ONGC and Oil India. Assam might get above Rs 1,400 crore.”
ONGC has appealed in the Supreme Court against the Gujarat High Court order to pay Rs 10,000 crore to the state. In February 2014, the apex court stayed the high court order but told ONGC to pay royalty at the pre-discount price starting that month.
The government decision now means ONGC and Oil India would have to pay the royalty to states based on their gross realisation on crude sales and not on the net price.
It is the difference between gross and net price that is the subsidy burden borne by producers to compensate state-run oil marketing companies (OMCs) for selling sensitive petroleum products at below cost.
From April 2003, ONGC started paying the royalty to the central government for its offshore fields at the post-discount price, while for onshore fields, it paid the royalty on the pre-discount price.
While ONGC stock closed on Monday at Rs 219 a share, down 4.97 percent from its previous close, Oil India closed at Rs 362, which was 3.04 percent lower over its previous close on the Bombay Stock Exchange.