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  1. Cairn India sees ad-vantage in pressing its case

Cairn India sees ad-vantage in pressing its case

Cairn India, intent on getting its Barmer oilfield contract extended, has gone public with its demands for free-market pricing for oil and gas and special incentives for difficult fields.

By: | Updated: September 5, 2015 4:09 AM
Cairn India

Cairn India, intent on getting its Barmer oilfield contract extended, has gone public with its demands for free-market pricing for oil and gas and special incentives for difficult fields. (Image: Cairn website)

Private explorer Cairn India, intent on getting its Barmer oilfield contract extended, has gone public with its demands for free-market pricing for oil and gas and special incentives for difficult fields.

Close on the heels of the government announcing a regime free from its interference for small and marginal fields, the Vedanta Group company in a quarter-page advertisement in a leading newspaper also pitched for early contract extensions for seamless planning and linking of the cess to oil price to avert any undue burden on producers.

So, for instance, the ad says “free market price for oil and gas” benefits mainly the government. In another place, it says “early contract extension enables long-term capital investment”.

Also, the company says, if the cess on oil is linked to oil price, it would “encourage domestic production” by avoiding undue burden on firms when prices are depressed. Currently, cess is charged on production volumes. While the government is contemplating to allow a certain quantum of hydrocarbons produced at difficult fields to be sold at market rates, the Vedanta Group company has said “production incentives for difficult fields maximises oil and gas recovery”.

Stating that Cairn India played a significant role in developing oil and gas resources and making India self-reliant, the advertisement also highlighted that the firm has invested Rs 34,000 crore in India and helped cut the country’s oil import bill by Rs 1.79 lakh crore and made the exchequer richer by Rs 82,000 crore.

In June, Cairn India announced a plan to merge with parent Vedanta, and the requisite regulatory clearances are awaited. In 2010, London-based Vedanta chairman Anil Agarwal announced taking over of a controlling stake in Cairn India from its then parent, Edinburgh-based Cairn Energy, but had to cross many hurdles and wait for several months before turning that into reality.

The then UPA government forced the private explorer to reimburse its PSU partner in the Rajasthan block, ONGC, for all royalties the latter had paid on Cairn’s behalf.

Cairn India, which has claimed in the advertisement that its share is close to 30% in domestic oil production and over 80% of value flows to the government, is facing a major uncertainty when it comes to extension of its production-sharing contract (PSC) for the Barmer block in Rajasthan. The contract is set to expire on May 14, 2020. Cairn India submitted its application for contract extension to petroleum ministry on April 5, 2013. However, the government has not yet arrived at any consensus for extension of the same.

The government is set to renegotiate the fiscal terms after the law ministry opined that terms could be redrawn. Now, the Centre would look for bigger pie of revenues from the Barmer block (RJ-ON-90/1).

The oil ministry has also shot down a Cairn proposal to export crude oil from the Barmer block, saying the PSC doesn’t provide for sales abroad. The ministry’s decision comes despite the fact that exports could fetch the company $12 per barrel more than domestic sales, which incidentally are at a discount to market prices due to a 2009 government directive.

Cairn India is also seeking to renegotiate the pricing formula for crude oil from the Barmer block. The petroleum ministry is of the view that it has “no direct role to play” when it comes to pricing of crude oil produced from the biggest onshore field Barmer. If the explorers want a revision in the pricing formula, they should negotiate with the buyers directly, which is also provided by the PSC, the ministry feels.

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