Payment of Differential Royalty on crude oil production through budgetary allocation for the Production Sharing Contracts awarded to discovered fields located in A runachal Pradesh, Assam and Gujarat

No: --- Dated: Aug, 26 2015

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has approved the proposal for payment of differential royalty [the difference between the rates of Royalty as per provisions 'contained in respective the Production Sharing Contracts (PSCs) and the notified rate of Royalty on crude oil production] to State Governments concerned in respect of 28 discovered fields, which were awarded by the Government to different companies during the years 1994-95, 2001 and 2004. These were in the States of Arunachal Pradesh, Assam and Gujarat. The payment shall be through budgetary allocation instead of through Oil Industry Development Board (OIDB) fund from the year 2015-16 onwards. Detailed list of the fields is enclosed.

The proposal will have a financial implication on government budgetary allocation, while the outflow from OIDB will be reduced accordingly. The expected expenditure for the year 2015-16 has been estimated at Rs.56 crore comprising of Rs.30 crore for Arunachal Pradesh and Rs. 26 crore for Gujarat (assuming average crude oil price of US$50/barrel and one US$ being equivalent to Rs.60).

Currently, State Governments are getting royalty based on the Oilfields (Regulation & Development) Act, 1948 and Petroleum & Natural Gas Rules, 1959 and the differential R oyalty (difference between the Royalty rates as per PSC and the notified rate of Royalty on crude oil production) is being paid by OIDB. The Standing Committee on Petroleum & Natural Gas, while examining the functioning of OIDB, recommended that differential Royalty to the State Government concerned may be made through budgetary allocation, in order to ensure proper utilization of OIDB fund.