ONGC asks govt to cut cess, royalty, free gas price to help company survive

New Delhi: India's top oil and gas producer ONGC has sent an SOS to the government seeking a cut in taxes as well as being granted pricing and marketing freedom for gas to help it weather the slump in prices that has made sustaining operations difficult and may force a cut in investments.

The slump in international oil prices to low-20s (USD/barrel) and natural gas prices falling to a decade low of USD 2.39 per million British thermal unit is threatening to push the company into making cash-losses on a monthly basis, sources with direct knowledge of the development said.

While the gas price is way below the cost of production, high tax incidence is resulting in cash losses even on crude oil output.

State-owned Oil and Natural Gas Corp (ONGC) last month wrote to the government seeking abolition of oil cess if price realised by producers is less than USD 45 per barrel. Also, it wants the 20 per cent of price paid as royalty to state governments be halved.

Currently, the government levies 20 per cent ad-valorem cess on the price that producers get. Also, ONGC/OIL are required to pay 20 per cent royalty on the price of crude oil it extracts from onland oil blocks to the state governments.

Sources said ONGC wants the formula of pricing domestically produced natural gas at rates prevalent in gas-surplus nations such as US and Russia. The rates using the formula came to USD 2.39 per million British thermal unit from April.

This price is the lowest that the company will realise since 2010 when the government had moved towards deregulating gas pricing.

In May 2010, the Cabinet had approved an Oil Ministry proposal to raise the rate of gas sold to power and fertilizer firms from USD 1.79 per mmBtu to USD 4.20.

ONGC and OIL got USD 3.818 per mmBtu price for the gas they produced from fields given to them on nomination basis and after adding 10 per cent royalty, the fuel cost USD 4.20 per mmBtu for consumers.