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

August 27, 2015

The Cabinet Committee on Economic Affairs (CCEA) has approved the proposal for payment of differential royalty in respect of 28 discovered fields to the respective State Governments concerned.
These 28 discovered fields were awarded by the Union Government to different companies in states of Arunachal Pradesh, Assam and Gujarat during the years 1994-95, 2001 and 2004.
The royalty payment will be through budgetary allocation from the year 2015-16 onwards instead of Oil Industry Development Board (OIDB) fund.
Financial Implication: The estimated expenditure for the year 2015-16 based on this payment mechanism has been estimated at 56 crore rupees of which 30 crore rupees for Arunachal Pradesh and 26 crore rupees for Gujarat. This expenditure is calculated assuming average crude oil price of 50 US dollars per barrel and one US dollar being equivalent to 60 rupees.
Background
The Standing Committee on Petroleum & Natural Gas (SCPNG) while examining the functioning of OIDB had recommended that differential Royalty to the concerned State Governments should be made through budgetary allocation, rather than OIDB fund in order to ensure proper utilization of the fund.
What is Payment of differential royalty?
In the approved proposal, payment of differential royalty is the difference between the rates of Royalty as per provisions of Production Sharing Contracts (PSCs) and the notified rate of Royalty on crude oil production.
What is current Royalty payment mechanism?
Currently, OIDB pays differential Royalty to respective State Governments based on the Oilfields (Regulation & Development) Act, 1948 and Petroleum & Natural Gas Rules, 1959.
In this case, the differential Royalty is the difference between the Royalty rates as per PSC and the notified rate of Royalty on crude oil production.