New Delhi sanctions payment of outstanding oil royalty to Assam and Gujarat as ‘one-time Special Central Assistance” only after PMO approved it

The Narendra Modi government has recently sanctioned the release of an amount of Rs. 2204 Crore as outstanding oil royalty which were to be paid two oil majors-- Oil India Limited and Oil and Natural Gas Corporation (ONGC) to Assam and Gujarat, but only as “one time Special Central Assistance grant” for the year 2016-17.

Even the recommendation of Ministry of Petroleum and Natural Gas for sanction of the amount to both the states required approval from the Prime Minister’s Office (PMO). This is a clear departure from earlier practice of Ministry of Finance directly releasing oil royalty to the states at the recommendation of the Petroleum and Natural Gas, without having to obtain any prior approval of the PMO.

Under this Special Central Assistance grant, the Central government sanctioned an amount of Rs. 945.90 Crore to Assam and Rs. 1258.80 Crore to Gujarat for “payment on account of outstanding amount of difference in oil royalty which were to be paid by upstream companies ONGC and OIL to the respective State Governments for the year 2016-17.”

“The amount of above Special Central Assistance Grant is being released based on the recommendation made by the Ministry of Petroleum and Natural Gas vide their OM No. O-22013/1/2015-ONG-III date 28.02.2017 and approved by PMO vide their ID no. 270/31/C/28/2016 ES 1 dated 15.03.2017,” states a directive issued on March 16 by the Ministry of Finance for the release of the grant on Demand No. 32 of the Union Budget.

Besides, making payment of oil royalty as “one time central assistance” has triggered a question if the Central Government has any plan to make payment of oil royalty to the respective states only when it desires while payment of oil royalty by oil companies requires to be regular feature of Ministry of Finance releasing the amount to the respective states whenever recommended by the Ministry Petroleum and Natural Gas.

Photo courtesy : http://cm.assam.gov.in

Assam Chief Minister Sarbananda Sonowal thanked Prime Minister Narendra Modi, Union Finance Minister Arun Jaitely and Petroleum Minister Dharmedra Pradhan for agreeing to pay Rs. 6230 Crore as oil royalty to the Assam government and Rs. 8468 Crore to Gujarat government following an out-of-the-court settlement on royalty claims by Gujarat and Assam. As part of this settlement Assam and Gujarat will not insist on payment of interests to the tune of Rs 7223 crore due since 2008 to the two states by the two upstream oil companies. The Central government agreed to release Rs. 948 Crore in in 2016-17, Rs 2,844 crore in 2017-18 and Rs 2,528 crore in 2018-19 to Assam government as crude royalty.

Till March 31, 2008, oil companies used to pay royalty on pre-discount sale price. This was modified and the oil companies paid the states on post-discounted price. Gujarat government objected to this and filed a petition in Gujarat High Court. The Gujarat High court directed the ONGC in November 2013 to make payment on pre-discounted price. However, the ONGC challenged the Gujarat High Court directive in the Supreme Court. The apex court issued an interim order directing ONGC to make payment of oil royalty to Gujarat government on pre-discounted price with effect from February1, 2014.

The Supreme Court disposed of the case on February 20 following the out-of-the-court settlement arrived at the initiative of Narendra Modi government.

On August 4, 2016, the OIL made a payment of Rs. 1,149.24 crore and ONGC made a payment of Rs. 300.64 crore to Assam government towards differential royalty on pre-discount price for the period from 01.02.14 to 31.03.16.

Photo courtesy : http://cm.assam.gov.in

The previous Tarun Gogoi-led Congress government had moved the Gauhati High Court in 2014 seeking direction to the OIL and ONGC to pay royalty on crude oil on pre-discounted rate in accordance with the interim order of the Supreme Court. The Gogoi government in a memorandum submitted to the Prime Ministe Modi during his two-day visit to Assam on November 29-30, 2014 estimated the cumulative loss of revenue to the tune of more than Rs. 10,000 crore on account of payment of oil royalty on post-discounted rates.

Sushanta Talukdar