HC asks ONGC to pay royalty dues worth Rs 5,000-6,000 crore to Gujarat govt

 
Gujarat High Court has directed Oil and Natural Gas Corporation (ONGC) to pay dues worth Rs 5,000 crore to Rs 6,000 crore to the state government towards differences in royalty of crude the PSU has extracted since 2008.

A division bench headed by Chief Justice Bhaskar Bhattacharya and Justice JB Pardiwala on Saturday directed ONGC to pay differences in royalty of crude within two months and also pay royalty, henceforth, to state government at market rate.

According to the Oil Field Act, ONGC is required to pay 20 per cent royalty of the market value of crude oil it extracts from oil blocks to the state government.

ONGC used to pay such royalty to the Gujarat government but, in 2004, the Union government asked it to provide crude to Indian Oil Corporation (IOC) as burden-sharing mechanism, at a discounted rate because IOC was offering subsidies on diesel, kerosene and Liquefied Petroleum Gas (LPG) to consumers, resulting in huge losses to the latter.

Since ONGC started providing crude to IOC at a discounted rate, it started paying royalty to the state government at post-discount rate, resulting in drastic reduction in royalty to Gujarat.

The state also complained to the Centre in this regard.

In 2011, the state government filed a petition before the High Court, stating that it should be paid royalty at market rate and the difference in royalty payment since 2008 at pre-discount rate (in comparison to market rate) was computed at Rs 5,000 crore to 6,000 crore.

State government counsel Aspi Kapadia informed the court that ONGC, at times, provided crude to IOC at a huge discount of 96 per cent, which resulted in huge downfall in royalty payment to the state. The state, he argued, must be paid royalty at market price.

Directing ONGC to make payment of differences of royalty to the state within two months, the court also asked it to pay royalty, in future, at market rate.

Finance Ministry keen on selling 10 pc govt stake in Indian Oil in Nov

The Finance Ministry wants to sell 10 per cent of the government's stake in Indian Oil Corp (IOC) by end of the month in a bid to achieve its Rs 40,000 crore disinvestment target.

So far, the government has raised about Rs 1,325 crore from stake sales in six companies.

"We want to push the IOC stake sale first, within November itself. This will pave the way for disinvestment of other oil sector PSUs like Engineers India," a senior Finance Ministry official said on Sunday.

IOC shares closed at Rs 213.20 on the Bombay Stock Exchange on Friday. They have fallen 43 per cent from the 52-week peak of Rs 375 on January 18.

At the current price, the sale of 19.16 crore IOC shares, equivalent to 10 per cent of the government's holding in the company, would fetch more than Rs 4,000 crore, which is 10 per cent of this financial year's disinvestment target.

Last month, the Department of Disinvestment put off overseas roadshows for the IOC stake sale following opposition from the company and the Petroleum Ministry, which cited poor market conditions. The roadshows were planned in London, US, Singapore, Hong Kong and Dubai.

Citibank, HSBC and UBS Securities are among the five merchant bankers selected to manage the oil retailer's share sale.

IOC Chairman RS Butola had written to the Oil Ministry in September, saying, "Current share price of IOC, already undervalued, may not fetch the fair value in the prevailing uncertain environment and investors in all probability are likely to factor in huge discount in their assessment of share price."

A share sale under present conditions could fetch a low price and would further dent IOC's efforts to raise loans for crude oil imports.

The government held a 78.92 per cent stake in the country's largest oil refiner as of September 30.

IOC posted an 82.5 per cent drop in net profit to Rs 1,683.92 crore for the July-September quarter after losses from foreign exchange and sales of diesel, cooking gas and kerosene below cost.

The government plans to sell 10 per cent in Engineers India. At the current market price of Rs 175.10, the sale of 3.36 crore EIL shares would fetch about Rs 600 crore.