Cairn India’s Rajasthan oil block license extension is stuck in a dispute over cost and the firm is surviving on monthly extensions by the government, sources said.
The government had agreed in October 2018 to extend the contract by 10 years for Barmer fields in Rajasthan after the expiry of the initial 25-year contract period on May 14, 2020. The extension was subject to Vedanta Group firm agreeing to raise the share of the government’s profit from oil and gas produced from the block by 10 percent.
While Cairn protested against the additional payout and took the government to court, the extension was subsequently held up due to the government claiming additional profit petroleum after re-allocating Rs 2,723 crore common cost between different fields in the block and disallowance of Rs 1,508 crore cost on a pipeline, sources privy to the development said.
Now the government wants the company to clear the dues before the extension is granted, they said adding the company has disputed the demand and issued a notice of arbitration to resolve the differences.
Pending resolution, the government first gave the company a three-month extension of the production sharing contract (PSC) for the Rajasthan block, which houses the prolific Mangla, Bhagyam and Aishwariya oilfields, till August 15, 2020.
It subsequently extended the PSC by 15 days and then by a month till September 30, sources said.
According to Hindustan Times, a company spokesperson said, “The Rajasthan PSC allows extension on the same terms for a period of 10 years in case of commercial gas production and we are accordingly eligible for the extension.” The block, it said, produces more than 20 percent of India’s crude oil production and has the potential to double this over the next 3 years.
“This requires a reduction in fiscal levies and administrative support for timely approvals,” the spokesperson said. “We have referred a few matters to arbitration that we were not able to mutually resolve.” The company, however, didn’t provide details.
“We are hopeful to see some positive outcomes, we are committed to producing in this block and contribute significantly towards a self-reliant economy,” the spokesperson added.
Sources said the Directorate General of Hydrocarbons (DGH), the upstream nodal authority of the Oil Ministry, on October 26, 2018, granted its approval for a ten-year extension of the Production Sharing Contract (PSC) for the Rajasthan Block (RJ), with effect from May 15, 2020 subject to payment of additional profit petroleum.
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