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Nelp crude may attract special tax

The government is obtaining legal opinion for imposing a special oil tax on the domestic crude oil production under the New Exploration Licensing Policy (Nelp).

, ET Bureau|
Sep 15, 2008, 01.15 AM IST
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NEW DELHI: The government is obtaining legal opinion for imposing a special oil tax on the domestic crude oil production under the New Exploration Licensing Policy (Nelp). The proposed tax is supposed to kick-in after price of domestically-produced crude oil crosses the $75/barrel mark. While public sector oil producers like ONGC and Oil India would have to fork out to the government 100% of additional realisation beyond the cut-off price, private companies like Reliance Industries (RIL), Essar Oil and Cairn India would be required to pay 40% of their windfall gains.

The development assumes significance as RIL���s oil production from KG basin is about to start. Cairn India is scheduled to start oil production in Rajasthan by 2009. The high-powered BK Chaturvedi Committee recommended levying a special oil tax on oil produced from the pre-Nelp blocks and asked the government to examine whether the same could be imposed on the crude produced under the Nelp regime.

���The legal position as to whether the proposed tax would militate against the provision of the production sharing contracts (PSCs) signed by the exploring companies under Nelp would be examined in detail immediately,��� a source in the government said.

ET reported on August 12 that the government may revisit concessions given to the oil & gas producers under the Nelp regime and examine whether the proposed tax is consistent with these agreements. Legal implications of the proposed tax must be examined as the PSC (production sharing contract between the government and the oil company for exploration & production of hydrocarbon from the block under Nelp) guarantees a stable fiscal regime, an oil expert in the government said.

���Crude oil and natural gas is also produced in leases extended in the post-Nelp. The government may examine the terms of the agreement under which these concessions were given and see if a tax is consistent with these agreements,��� the Chaturvedi committee said. The petroleum ministry had, however, written to the Prime Minister���s Office (PMO), rejecting imposition of windfall gains tax on natural gas.

Through six rounds of Nelp, the government signed 162 PSCs with public and private sector oil companies like RIL, BG, Cairn, GSPC, ONGC, Hardy and Niko. PSCs for over 50 more exploration blocks under the Nelp-VII are yet to be signed.

In a communication to the PMO, the oil ministry said domestic gas price was highly controlled at 1/5th of the prevailing international price of around $15/million British thermal unit (mmBtu) and any attempt to impose windfall gain tax on gas is unjustified. The ministry���s comments has been significant since RIL is likely to produce about 25 million standard cubic meter gas daily from November 2008 which would soon go up to 40 million standard cubic meter per day (MMSCMD).
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