Post Delhi High Court judgment, government mulls to recover dues from Vedanta’s Cairn Oil & Gas

The oil ministry plans to seek millions of dollars from Vedanta’s Cairn Oil & Gas after the Delhi High Court held that the firm was liable to pay higher profit share to the government in lieu of its Rajasthan oil and gas block license being extended beyond initial term.

Cairn’s Barmer basin in Rajasthan block licence, whose initial 25-year term ended on May 15, 2020, has been given an eighth interim extension. Now that the Delhi High Court has upheld the government policy, recovery notices will be issues to Cairn seeking higher profit on petroleum since May 15, 2020. The exact amount, yet to be calculated, is being estimated to be multi-million dollars.

The extension policy provided that the government’s share of profit petroleum (earning from sale of oil and gas after deducting all expenses) would be 10 per cent more during the extended period.

Vedanta’s Cairn had sought a 10-year extension of Rajasthan PSC, which the government approved. But the firm challenged in Delhi High Court the condition for additional profit petroleum. A single judge bench of the Delhi High Court in May 2018 upheld the company position that the extension has to be on same terms and conditions as the original licence.

The government challenged the order before a division bench, which on March 26 this year ruled that “there cannot be extension of the Production Sharing Contract unconditionally, on the same terms and conditions which were prevailing 25 years ago. It set aside the May 2018 single judge order.

The government claims 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. The company has challenged the demand through an arbitration.

It also had a dispute with its partner state-owned Oil and Natural Gas Corp (ONGC) over investments made in the block, which held up the computation of the government’s share of profit petroleum for fiscal years ending March 31, 2019, and March 31, 2020. ONGC holds 30 per cent interest in the block while Cairn Oil & Gas, a unit of Vedanta Ltd, is the operator with a 70 per cent stake.

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