Centre agrees to pay Rs 6,320 cr as oil royalty to Assam

New Delhi: The Centre on Monday agreed to pay Rs 6,320 crore to the Assam government as crude oil royalty, as part of an out of the court settlement after eight years of protracted legal battle.

The amount will be paid by the central government to the Assam government over a period of three financial years commencing 2016-17.

Assam Chief Minister Sarbananda Sonowal thanked Prime Minister Narendra Modi, Finance Minister Arun Jaitley and Petroleum Minister Dharmendra Pradhan for the "proactive and bold steps" which led to the out of the court settlement.

"The Central and state governments were fighting in courts over the oil royalty issue since 2008 when both the governments were ruled by the Congress,” Sonowal said

"But within nine months of the BJP government coming into power in Assam, we have resolved the dispute and the central government agreed to pay Rs 6,320 crore as oil royalty. We are thankful to the Modi government," he added.

While in 2016-17, the central government will pay Rs 948 crore, in 2017-18 it will pay Rs 2,844 crore and in 2018-19 will pay Rs 2,528 crore. This is in addition to the Rs 1,450 crore already received.

The Oil India Limited produces 3.2 million tonnes crude oil in Assam annually, while Oil and Natural Gas Corporation Limited produces 1.1 million tonnes crude oil every year in the state.

The OIL and the ONGC have been paying royalty to the central and the state governments as per terms of statutory provisions of oilfields (Regulations and Development) Act 1948 and Petroleum and Natural Gas Rules, 1959.

The Petroleum Ministry on October 30, 2003 had directed upstream companies, including ONGC, to give a discount in price on sale of crude oil to the Oil Marketing Companies.

The notional price of the crude oil produced by upstream companies is initially derived on the basis of the average international price and then discounts are fixed as decided by the central government.

It had also been provided that the discount offered by upstream companies would not affect the royalty payable to the state governments. Accordingly, upstream companies paid the royalty on pre-discount price during 2003-04 to 2007-08.

However, keeping in view the representation made by the companies, statutory provisions and the opinion of the Law Ministry on the issue, the Petroleum Ministry on May 23, 2008 withdrew the provisions that the revenue of the state government in term of royalty on crude oil will not be affected by the discount given on crude oil prices.

Consequently, in terms of aforesaid directives, both companies--OIL and ONGC--started making payment of royalty to the state governments at actual (post discount) sale price from April 1, 2008.

The Assam government filed a writ petition with the Gauhati High Court asking OIL and ONGC to pay a royalty on pre-discount prices.

The Petroleum Ministry on July 15, 2016 decided that in terms of the Supreme Court order on February 13, 2014, the OIL and ONGC will pay royalty to all similarly placed crude oil producing states at pre-discount price effective February 1, 2014, pending the outcome of the Special Leave Petition filed by the ONGC before the Supreme Court.

"With this agreement between the central and the state governments, all sides will withdraw the court cases," the chief minister said.