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Cairn India’s Oil Block Licence In Rajasthan Stuck In Cost Dispute; Survives By Monthly Extensions

Cairn India, a vertical of Vedanta Limited, is known for its contribution of crude oil and gas to the nation. The company’s oil block license extension in Rajasthan is stuck in a cost dispute with the government and is literally surviving on the monthly extensions. In October 2018, the Directorate General of Hydrocarbons (DGH), the upstream nodal authority of Oil Ministry, granted its approval for a ten-year extension of Production Sharing Contract (PSC) for Rajasthan Block, subject to the payment of additional profit petroleum, with effect from 30th May,2020, after the end of the initial 25-year contract period.

However, Cairn challenged it and took the issue to Delhi High court , where the extension license was held up due to the government demanding additional profit petroleum by 10 percent, after disallowing Rs 1508 crore out of the cost incurred on laying a heated-pipeline to transport Barmer crude and reallocated Rs 2723 crore common costs between different fields in the block. On a total, Rs 4828 crore, including interest, is being sought to be disallowed for 2017-18 fiscal.

The government wants the company to clear all its dues before extension and says that the company disputed the demand from government and issued a notice of arbitration to resolve the differences. Pending resolution, the government gave the company a three-month extension of Production sharing Contract (PSC) for Rajasthan Block, which houses Mangla, Bhagyam and Aishwarya oil fields till 5th August,2020. It subsequently extended the PSC by 15 days and then by a month till 30th of September,2020.

The company also had a dispute with it’s partner, Oil and Natural Gas Corporation (ONGC) over the investments made in the block, which held up the computation of government’s share of profit petroleum for fiscal years ending 31st March 2019 and 31st march 2020. ONGC holds 30 percent interest in the block while Cairn Oil&Gas, a vertical of Vedanta Limited, is the operator and holds 70 percent stake. All these costs pertain to only Cairn’s share in Rajasthan block as ONGC agreed to pay the government if these costs are disallowed.

The company’s spokesperson says, “The block produces more than 20% of India’s crude oil production and has a potential to double it’s production in the next three years. This requires a reduction in fiscal levies and administrative support for timely approvals. The Rajasthan PSC allows extension on the same term for a period of 10 years in a case of commercial gas production and we are accordingly eligible for the extension. We are hopeful to see positive outcomes, we are committed to produce in this block and contribute significantly towards a self-reliant economy.”


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- By Sowmya Sastry

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