May 24: UK-based Cairn Energy has contested Oil and Natural Gas Corporation’s (ONGC) claim to cost-recovery of Rs 12,600 crore in royalty payable on Cairn India’s share of oil production from the Rajasthan field, but the Solicitor General of India, Mr Gopal Subramaniam has supported the state-run company’s claim.
ONGC owns a 30 per cent stake in Cairn India’s Rajasthan block, but is liable to pay royalty on the entire output from the field. It wants the Rs 18,000 crore royalty payable on it and Cairn India’s value to be added to the project cost. Mr Bill Gammell, CEO of Cairn Energy Plc, had sent a note to the members of a ministerial panel that is to vet his firm’s sale of a stake in Cairn India to Vedanta, saying, “royalty is the obligation of the state-run ONGC as the licensee and hence is not cost recoverable.” Mr Gammell quoted Article 16.4 of the production sharing contract for the Rajasthan fields saying that “Cairn shall not be liable to the government or a state government for payment of royalty... the cost of which shall be borne by the licensee (ONGC).”