Windfall tax can’t be levied on private firms
A curious recommendation by the B.K. Chaturvedi Commission in its report on the levy of windfall tax on oil exploration and production (E&P) companies rela-tes to their caregorisation into pre- and post-NELP bl-ocks. It assumes that all pre-NELP (New Explorat-ion Licensing Policy) blo-cks are on nomination basis and others as given on bidding basis.
This premise is not based on facts. Prior to allowing private operators, all E&P activities were confined to NOCs (national oil companies) and post-1999, NOCs were also required to bid and win the blocks for their E&P activities. But that does not render pre-NELP blocks originally with NOCs but withdrawn for offer on ICB to private firms as well as NOCs to be considered as given on nomination.
Right from the 1980s, when the bidding rounds started, all blocks were offered on ICB basis. By no stretch of imagination can they be termed to be given on nomination basis to private operators who won them on ICB basis. It makes little difference to private players whether they were pre-leased or not, as the government as owner choo-ses to replace NOCs by private operators or a consortium of private and NOC operators or purely by NOCs in case they win the bid. The mere change in nomenclature to NELP does not anyway render earlier offers for bid less competitive. If NOCs reg-ain such withdrawn blocks in ICB, they cease to be ones obtained on nomination and are entitled to be treated on par with others who win in such bidding.
In the early 90s, while ONGC and OIL were paid cost plus price for oil and gas under the APM for nominated fields, in the production sharing contracts awarded on ICB with participating interests by ONGC and OIL, the latter were treated on par with private operators and paid international prices for cr-ude and realise market price for natural gas. Further, a large number of blocks offered post-1999 NELP are recycled blocks — pre-leased or pre-explored or relinquished — but the co-mmittee sees no inconsistency in considering them as non-nominated blocks for windfall tax purposes, but still shies away from categorically making them subject to windfall tax.
The distinction made is a travesty of facts, apart from being invidious and the arguments specious as they fly in the face of law governing the fields. It is difficult to see whom the committee is trying to fool. A charitable view could be that the committee has poor grasp of facts and poorer appreciation of law. But a less charitable view in the current political scenario does not make it look such an innocuous oversight. This distinction shields companies targeted for wi-ndfall tax by the new ac-complices of the UPA government. But its unintended consequence is to victimise those independents whose successes in India put the country’s basins on the world map as prospective regions for oil and gas. One hopes that the original proponents of the tax are not naïve enough to let this mischief go unnoticed.
The author is former secretary, Union ministry of oil and petroleum
T.N.R. Rao
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