Payment of Differential Royalty on crude oil production

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 


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. 

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Permitting 100 percent equity divestment after two years of construction completion for all BOT projects irrespective of year of award 

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi has amended its earlier approval dated 13th May, 2015 for permitting 100 percent equity divestment after two years of construction completion for all BOT projects, irrespective of year of award. The approval would allow the concessionaire(s)/promoter(s) to use proceeds from the sale of divested equity in one or more of the following: 

(a) Incomplete National Highway Authority of India projects. 

(b) Any other highway projects. 

(c) Any other power sector projects; and 

(d) to retire their debt to financial institutions in any other infrastructure projects. 

This will result in physical completion of languishing infrastructure projects. This in turn will bring relief to citizens /travellers in the concerned area. 

The main object of the approval is to expedite award and implementation of highway projects in the country by making additional funds available for investment in projects. Consequently, it will facilitate uplifting socio-economic condition of the entire nation due to increased connectivity across the length and breadth of the country. This will also lead to enhanced economic activity. 

Background: 

The Cabinet Committee on Economic Affairs (CCEA) in its meeting held on 13th May, 2015 approved the proposal of the Ministry of Road Transport and Highways, to make applicable mutatis mutandis the provision of Model Concession Agreement (MCA) pertaining to the exit option for selected bidder/consortium members together with its/their associates, i.e. Clause-7.1(k), read with the definition of 'change of ownership' in Article-48, to all BOT (Toll) and BOT (Annuity) projects awarded till 30th September 2009, with the modification that the equity so divested, be invested by the promoter(s), in their incomplete National Highways Authority of India (NHAI) projects. Subsequently, NHAI issued policy circular dated 9th June 2015 with this effect. 

The National Highways Builders Federation (NHBF), subsequent to the policy circular issued by NHAI, made a representation that all developers are not having incomplete highways projects, thus they are denied of this facility for no fault. Most developers in the infrastructure sector are carrying highly leveraged balance sheets at their Holding Companies level, as they have been simultaneously supporting various infrastructure Special Purpose Vehicles (SPVs) which are under severe stress. These developers can be allowed to utilize funds so ngenerated to reduce their existing corporate debt or for investment in any new infrastructure project that need not alone be highways projects, as most developers have multiple verticals in the infrastructure sector. 

NHAI after examining the representation of NHBF is also of the opinion that full benefits of this policy decision/circular can also be leveraged, if certain amendments are made to the above said decision. NHAI has also suggested that the policy circular dated 9th June 2015 may be amended accordingly to make the policy applicable in its true spirit.