News Release Details
Cairn, ONGC to split pipeline cost70:30
New Delhi 11-Jul-2007
Modalities for executing the Rs 1,000-crore pipeline evacuating crude oil from Cairn Energy's Rajasthan oil block have been finalized by the petroleum ministry. Cairn and state-owned ONGC will share the cost of the pipe line in the ratio of their equity stakes in the block, which is 70:30. The vexed issue relating to the recovery of pipeline cost has also been settled. It has been agreed that the pipeline cost would be recovered later as part of the field development plant FDP). Legal advice obtained by ONGC from Amarchand Mangal das, at the behest of the petroleum ministry, has clarified that the pipeline cost can be recovered under FDP following shifting of the delivery point to a coastal location. This, a sperthe legal advice, is in line with the accounting procedures defined in Section 2 of Appendix C. While the petroleum ministry is yet to issue a formal notification, petroleum secretary MS Srinivasan at a recent meeting directed that necessary action for granting the right of usage (ROU) to Cairn Energy India lid be taken to ensure production from the block RJ-ON-90/1 as per the FDP. The opinion of ministry of law and justice regarding liability of payment or cess was also discussed at the meeting. The legal advice has clearly brought out that the producer of the oil, i.e. the 'contractor', was liable to pay the cess and there was no provision in the product-sharing contract to pass on this liability to the licensee. According to ONGC, while royalty was to be borne by ONGC, the cess was to be borne jointly by ONGC and Cairn in the ratio of 70:30, while the product-sharing contract is silent on cess, the Oil Field Regulation Act stipulates that the producer has to bear the cess. The same has now been confirmed through legal advice. The controversy over setting up a refinery at Banner in Rajasthan is, however, far from over. ONGC has informed the ministry of various cost data and non-viability of putting up 7.5 million tonne per annum. There was no possibility of tax sops from the Rajasthan government as sought by ONGC for making the refinery viable.
New Delhi 11-Jul-2007
Modalities for executing the Rs 1,000-crore pipeline evacuating crude oil from Cairn Energy's Rajasthan oil block have been finalized by the petroleum ministry. Cairn and state-owned ONGC will share the cost of the pipe line in the ratio of their equity stakes in the block, which is 70:30. The vexed issue relating to the recovery of pipeline cost has also been settled. It has been agreed that the pipeline cost would be recovered later as part of the field development plant FDP). Legal advice obtained by ONGC from Amarchand Mangal das, at the behest of the petroleum ministry, has clarified that the pipeline cost can be recovered under FDP following shifting of the delivery point to a coastal location. This, a sperthe legal advice, is in line with the accounting procedures defined in Section 2 of Appendix C. While the petroleum ministry is yet to issue a formal notification, petroleum secretary MS Srinivasan at a recent meeting directed that necessary action for granting the right of usage (ROU) to Cairn Energy India lid be taken to ensure production from the block RJ-ON-90/1 as per the FDP. The opinion of ministry of law and justice regarding liability of payment or cess was also discussed at the meeting. The legal advice has clearly brought out that the producer of the oil, i.e. the 'contractor', was liable to pay the cess and there was no provision in the product-sharing contract to pass on this liability to the licensee. According to ONGC, while royalty was to be borne by ONGC, the cess was to be borne jointly by ONGC and Cairn in the ratio of 70:30, while the product-sharing contract is silent on cess, the Oil Field Regulation Act stipulates that the producer has to bear the cess. The same has now been confirmed through legal advice. The controversy over setting up a refinery at Banner in Rajasthan is, however, far from over. ONGC has informed the ministry of various cost data and non-viability of putting up 7.5 million tonne per annum. There was no possibility of tax sops from the Rajasthan government as sought by ONGC for making the refinery viable.