• Budget 2019 waives Rs 1 per tonne excise duty on oil output

    Budget 2019 India: As a token incentive for crude oil producers — especially who plan to bid for 66 hydrocarbon fields offered by ONGC and Oil India for enhanced recovery — the government has decided not to charge the Rs 1 per tonne excise duty for their production, which was introduced in Budget 2019. The charge will be nil for ‘crude petroleum oil produced in specified oil fields under production-sharing contracts or in the exploration blocks offered under the New Exploration Licensing Policy through international competitive bidding’, the Budget documents states.

    A Rs 1 per tonne of excise duty has been levied on domestic crude oil production and a similar amount as Customs duty will be charged on imported crude, as per the Budget. The two together will contribute Rs 250 million to the exchequer. Till now, a national calamity and contingent duty (NCCD) of Rs 50 per tonne was charged on petroleum crude oil. “In certain cases this levy (NCCD) has been contested on the ground that there is no basic excise duty on these items. To address this issue, a nominal basic excise duty is being imposed,” finance minister Nirmala Sitharaman had said.

    State-run ONGC and OIL have invited bids for marginal nomination fields on partnership basis with the intention to maximise recovery from these fields by infusion of new technology. These fields contribute a meagre 5% to the total hydrocarbon production at present. The firms have already announced various incentives for fields to be offered under production enhancement contracts. The bids would be evaluated on the basis of revenue-sharing from the incremental oil and gas production and it will be applicable on incremental production over and above the baseline production under business-as-usual scenario, the current production.

    Also, unlike in a farm-in contract, bidders will not have to reimburse ONGC the capital investment already made in these fields. Winners will have marketing and pricing freedom to sell oil and gas on arm’s length basis through a competitive process. ONGC and OIL have been battling to increase production from these fields and despite PM Narendra Modi’s call to reduce import dependence, India’s crude oil imports was at 83.8% of the requirement in 2018-19 and is expected to increase to 86.8% in 2019-20.

    The state-run firms are offering a contract period of 15 years extendable by five years for the 64 fields on offer. Winners will also get a reduction of 10% in the royalty rate for additional production of natural gas over and above current production. Explorers will also be permitted the right to explore all kinds of hydrocarbon and will be given incentives for achieving production higher than the committed incremental production.

    Experts believe the exemption made for specified fields are done to further encourage overseas explorers. “During roadshows, often investors ask for incentives. This is one of them, though may not address the issue fully,” said an oil sector expert. “The fields offered under the Discovered Small Fields (DSF) may be a part of it,” said the expert. Under DSF policy, 57 contract areas have been bid out by the directorate general of hydrocarbons.

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