Current Affairs PDF Sales

CCEA gives nod to Differential Royalty Payment to states on crude oil production

The Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Narendra Modi, agreed the proposal to pay the differential royalty on crude oil production through the budgetary allocation for the Production Sharing Contracts (PSCs) awarded to 28 discovered fields located in Arunachal Pradesh, Assam and Gujarat  from 2015-16.

The proposal is for payment of differential royalty to State Governments concerned in respect of 28 discovered fields, which were awarded by the Government to different companies during the years 1994-95, 2001 and 2004. Also the payment shall be through budgetary allocation instead of through Oil Industry Development Board (OIDB) fund from now on.

What is it?

The payment of differential royalty is the difference between the rates of Royalty as per provisions contained in respective the PSCs and the notified rate of Royalty on crude oil production.

Background:

Currently, State Governments are getting royalty based on the Oilfields (Regulation & Development) Act, 1948 and Petroleum & Natural Gas Rules, 1959 and the differential Royalty is being paid by OIDB. The Standing Committee on Petroleum & Natural Gas, while examining the functioning of OIDB, recommended that differential Royalty to the State Government concerned may be made through budgetary allocation, in order to ensure proper utilization of OIDB fund.

Implications:

The proposal will have a financial implication on government budgetary allocation, while the outflow from OIDB will be reduced accordingly. The expected expenditure for the year 2015-16 has been estimated at Rs.56 crore comprising of Rs.30 crore for Arunachal Pradesh and Rs.26 crore for Gujarat, assuming average crude oil price is 50 US dollars per barrel and one US dollar being equivalent to 60 rupees.