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ONGC asks Government to eliminate windfall tax; lower floor price of natural gas

ONGC wants floor price of natural gas to be $10 per MMBtu

September 19, 2022 10:35 IST | India Infoline News Service
India's largest oil and gas producer, ONGC, is requesting that the government eliminate the windfall profit tax imposed on domestically produced crude oil and instead employ dividends to access the hefty profits brought on by the spike in energy prices.
According to two people with knowledge of the situation, the company also supports a natural gas floor price of USD 10 per million British thermal units, which is lower than the present government-dictated figure and would aid in bringing reserves in difficult regions into production.
In conversations with government representatives, the management of the state-owned Oil and Natural Gas Corporation (ONGC) said that it was wrong to tax local oil producers for windfall profits while benefiting greatly from the cheap oil that they purchased from Russia. The purchase of Russian crude oil at a discount, which the West had shunned since the Ukraine conflict, has helped save Rs35,000 crore, and these savings should be reinvested by increasing domestic output, they argued.
The management of ONGC has requested that any savings from the purchase of Russian oil be given to the firm that would use them to fund the specified projects. It believes that rather than imposing a windfall profit tax on prices beyond a certain level, corporations should be permitted to benefit from greater revenues and profits due to heightened oil and gas prices.
The corporate management informed the government that using these increased earnings to pay dividends would be a more equitable method to distribute wealth. A minimum yearly dividend of 30% of net profit or 5% of net worth, whichever is larger, is paid out by ONGC each year in accordance with the current regulations.
By adhering to this strategy, the company will increase dividend payments to the government, which owns about 59% of the company's stock, as well as to other investors, so fostering more investor confidence in the business. The government would gain the most from this as it would increase the value and price of the firm shares.
This strategy will also enable the corporation to keep a sizeable sum of money for use in exploring for oil and gas in less-explored regions and developing even more limited resources, which would ultimately benefit the country in reducing its reliance on imports, according to sources.

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