ONGC: ONGC in favor of abolishing the tax on windfall profits, wants the government to set the floor price of gas at 10 USD

India’s leading oil and gas producer, ONGC, wants the government to scrap the windfall tax on crude oil produced in the country and instead use the dividend route to leverage windfall profits from the surge in global energy prices, PTI reported.

The company has also favored a floor price for natural gas at $10 per million British thermal units – the current rate dictated by the government – ​​to help bring fields into production in difficult areas.

In discussions with government officials, the management of the state-owned Oil and Natural Gas Corporation (ONGC) said it was unfair to levy a windfall tax on domestic oil producers, while collecting significant savings by buying Russian oil at a discount.

The purchase of discounted Russian crude oil, which has been shunned by the West since the Ukraine conflict, has saved Rs 35,000 crore and these savings are expected to be reinvested by increasing domestic production, PTI reported citing sources.

The management of ONGC has told the government that the savings made from the purchase of Russian oil should be allowed to be passed on to the company which will invest the same in identified projects.

He believes companies should be allowed to earn higher revenues and profits from high oil and gas prices instead of levying a windfall tax on prices above a threshold.

This higher profit can then be harnessed for dividends which are a fairer way to distribute wealth, company management told the government.

In accordance with current guidelines, ONGC pays a minimum annual dividend of 30% of net income or 5% of net worth, whichever is greater.

As a result of this policy, the company will pay a higher dividend to the government, which owns almost 59% of the company’s shares, as well as to other investors, which will boost their confidence in the company. This would increase the price and valuation of company shares, which would benefit the government the most.

This route will also allow the company to save a good amount of money for oil and gas exploration expenses in unexplored areas and bring even smaller resources to production, which will ultimately help the nation to reduce its imports, sources said.

India imposed a windfall tax for the first time on July 1, joining a growing number of countries that tax the super normal profits of energy companies. Export duties of 6 rupees per liter ($12 per barrel) were levied on gasoline and jet fuel and 13 rupees per liter ($26 per barrel) on diesel. A windfall tax of Rs 23,250 per tonne (USD 40 per barrel) on domestic crude production was also levied.

Duties were partially adjusted in the five rounds of July 20, August 2, August 19, September 1 and September 16, and were waived for oil exports.

The tax on crude oil produced in the country is currently 10,500 rupees per ton, while the export duty on diesel is 10 rupees per liter and that on ATF is 5 rupees.

Sources said the ONGC is confident that allowing free market oil and gas prices will help attract big companies with technical savvy and financial muscle.

An ad hoc tax adds to tax uncertainties for investors, they said.

Following the same principle, the government should also allow companies to discover the market price of natural gas and tax only gains above a minimum threshold of $10 per mmBtu.

While the price of crude oil is at par with international rates, the government currently sets the price of natural gas every two years based on prevailing rates in gas-surplus countries like the United States and Russia. Even this gas pricing is currently being reviewed with a view to lowering prices for consumers.

The cost of producing gas on the high seas and in difficult areas such as high pressure and high temperature fields is very high and any attempt to artificially control rates would lead to investments in these fields becoming economically unviable. they stated.

ONGC told the government that it had recently discovered a price of US$22 per mmBtu that users were willing to pay for its coal bed methane (CBM) gas. The government may consider taxing any price above $10, sources said.

The government-dictated gas price for former ONGC fields is $6.1 per mmBtu for the six-month period ending September 30. The rate is close to $10 per mmBtu for difficult fields such as deep water. These rates are expected to climb to over $9 per mmBtu and $12 respectively from October 1.

(With PTI entries)


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