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PMO calls for resolution of Ratna & R-series oil fields issue

The fields are certified to have 500 million barrels of in-place oil reserves. The consortium may start production in 8-12 months from the date of signing of PSC.

, ET Bureau|
Jan 29, 2009, 01.01 AM IST
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NEW DELHI: The Prime Minister's Office (PMO) has directed the petroleum ministry to take appropriate action regarding signing of a production sharing contract (PSC) for discovered Ratna and R-series oil fields with Essar-led consortium.

The PMO directive came after Essar group chairman Shashi Ruia shot a letter to Prime Minister Manmohan Singh to expedite resolution of the 12-year-old issue. Production of oil and gas from the fields could not be started due to issues related to royalty and cess. The fields are certified to have 500 million barrels of in-place oil reserves. The consortium may start production from the fields in 8-12 months from the date of signing of the PSC. Other members of the consortium are the Oil & Natural Gas Corp (ONGC) and UK-based Premier Oil.

Mr Ruia told the PM that the consortium was ready to sign the PSC as all issues related to the nominated buyer Bharat Petroleum Corp (BPCL) and Gail India were resolved. "As regard to the issue of the applicability rates of cess and royalty, the ministry of law and attorney general have opined that the PSC had been concluded and the original rates should apply. The finance ministry has also accepted this position," Mr Ruia said in a letter to the Prime Minister.

When contacted, an Essar official said: "We would not like to comment on this issue."

There had been views within the government that the contract for Ratna and R-series was not concluded as the government had not signed a PSC with the consortium. Hence, rates of royalty and cess could be re-negotiated. After several rounds of meetings, the negotiating team of secretaries (NTS) on March 20, 2008, recommended old rates of cess (Rs 528/mt) and royalty (Rs 900/mt) for the field. Quoting legal opinion and views of the law ministry, the NTS said the contract was concluded with the issue of letter of intent (LoI) in 1996 itself, an official in the oil ministry, who didn't wish to be named, said. The new rate of cess is Rs 1,250/mt and the royalty is stated to be four times higher than the old rate.

"In July 2008, the oil ministry was considering to constitute a group of ministers (GoM) to deliberate on the issue as an award of the contract at old rates of royalty and cess would have huge financial implications for the government. But the issue was put on the back burner," he added. Oil ministry officials say that NTS' views could be vetted by a GoM, before the cabinet committee on economic affairs (CCEA) would give its final verdict. The Essar-led consortium bagged Ratna and R-series oil fields in 1996 through an international competitive bidding process. The PSC between the government and the contractor could not be signed amidst concerns over provisions of the discovered field policy.
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