PTI Report: Oil Ministry requests windfall tax review, asks for exemption on some blocks

20 Sep 2022 , 08:30 AM

The Indian oil ministry has requested a review of the new levy, which it claims violates the idea of fiscal stability outlined in contracts for discovering and producing oil, and an exemption from windfall profit tax for select oil fields that are located within the country.

The oil ministry requested an exemption from the two-and-a-half-month-old levy for the oil field or blocks that were awarded to businesses under Production Sharing Contracts (PSC) and Revenue Sharing Contracts (RSC) in a letter dated August 12 that PTI has examined.

The ministry claimed in the letter that the contracts include a built-in mechanism to take high pricing into account as incremental benefits are transmitted in the form of a bigger profit share for the government.

According to the document, firms have been given blocks or territories since the 1990s for the exploration and production of oil and natural gas under various contractual regimes, where a royalty and cess are imposed and the government receives a predetermined amount of earnings.

Fields were granted under the PSC system, in which the government receives roughly 50—60% of profits after costs are deducted. A provision of the RSC system particularly allows the government to be compensated for windfall gains.

The letter from the oil ministry stated that, based on its estimates, the additional fee for PSC and RSC causes the operator to pay substantially more than the actual windfall income.

The government’s revenue realization is anticipated to decrease due to the windfall cess’ decline from its initial levels.

The main exporters of fuels including diesel and ATF are Rosneft-based Nayara Energy and private refiners Reliance Industries Ltd. According to PTI, the windfall tax on domestic crude targets companies like state-run ONGC and Vedanta Ltd.

Major producers of crude oil, including ONGC, OIL, and Vedanta, have also requested a review of the new charge since it is negatively affecting their investment plans.

Economic unviability and breach of contract clauses are two issues cited by these companies, it was said.

Nirmala Sitharaman, the finance minister, stated earlier this month that the windfall tax is not imposed on an as-needed basis but rather after routine interaction with the sector.

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