Shares of ONGC and Oil India fell on Monday after Financial Express reported that these companies may face an additional royalty burden of more than $1 billion as Narendra Modi government has decided that royalty should be paid to crude oil-producing states such as Assam, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu at ‘pre-discount’ rates.
At 10.42 am, ONGC shares were trading 1.30 per cent down at 227.45. The scrip opened at Rs 230 and has touched a high and low of Rs 230 and Rs 226.70, respectively, in trade so far. Oil India Ltd was trading 2.26 per cent down at Rs 364.90. The scrip opened at Rs 370 and has touched a high and low of Rs 370 and Rs 360, respectively, in trade so far. Later, the scrip of ONGC closed 4.97 per cent down at Rs 219.00 and Oil India Ltd settled 2.85 per cent down at Rs 362.70.
A petroleum ministry order dated July 15 said,” It has been decided that ONGC and Oil India will pay royalty to all similarly placed crude oil-producing states at pre-discount prices effective February 1, 2014, pending the outcome of the special leave appeal filed by ONGC before the Supreme Court.”
The order implies that ONGC and Oil India would have to pay royalty to the states based on their gross realisation on sale of crude oil and not on the net price.
The difference between the gross and net price is the subsidy burden borne by these upstream companies to compensate state-run IOC, HPCL and BPCL for selling sensitive petroleum products below market cost. Though the exact additional burdens on ONGC and Oil India because of the ministry’s stance are not immediately known, officials say their combined additional payout would be $1 billion. Read more