The oil ministry wants a reassessment of the windfall tax and wants some fields exempted
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The oil ministry has requested a review of the windfall profit tax on domestically produced crude oil because it breaches the fiscal stability clause in contracts for oil exploration and production. The tax has been in force for two and a half months.
In a letter dated August 12 that PTI has reviewed, the Ministry requested an exemption from the new charge for any fields or blocks that were awarded to businesses under the Production Sharing Contract (PSC) and the Revenue Sharing Contract (RSC).
On July 1, India introduced the windfall profit tax, becoming the latest country to tax energy corporations’ higher-than-average profits. A Special Additional Excise Duty (SAED) was imposed on locally produced crude oil, while charges were imposed on the export of gasoline, diesel, and jet fuel (ATF).
The SAED on domestic crude oil was initially set at 23,250 per tonne ($40 per barrel), but it was reduced to 10,500 per tonne in weekly adjustments.
The government imposes a 10–20% royalty on the price of oil and gas, as well as a 20% oil cess on production within territories granted on a nomination basis to the state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. (OIL).
The letter claimed that calculations by the Oil Ministry showed that the additional fee for PSC and RSC causes the operator to pay substantially more than the actual windfall revenue.
Because PSC and RSC contracts already have built-in mechanisms for sharing revenues with the government in a high-price regime, the Ministry suggested in the letter that the government take into consideration exempting all the blocks falling under such a contractual regime from the new levy.
It continued by stating that it had already received requests for a review of the new levy from significant crude oil producers, including state-owned ONGC and OIL and private sector Vedanta Ltd., as it was negatively affecting their investment plans.
It was said that economic unviability and breach of contract clauses are two issues cited by these companies.
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