NEW DELHI : The 162-oil & gas exploration contracts signed under the New Exploration Licensing Policy (Nelp) regime may be reviewed if the government accepts the proposal of the B K Chaturvedi committee to levy a ‘special oil tax’ for crude production under pre-Nelp regime. The panel has also asked the government to revisit concessions given to oil & gas producers under the Nelp regime and examine “if a tax is consistent with these agreements”.

These observations could be significant since Cairn India is scheduled to start oil production in Rajasthan in 2009 and Reliance Industries is likely to start gas output from KG basin next month. The petroleum ministry, however, has written to the Prime Minister’s Office (PMO), rejecting the proposal, particularly on gas. The ministry communicated this to the PMO after the Chaturvedi panel submitted its report.

“The committee has said that oil and gas is also produced in leases extended in the post-Nelp. The government may examine the terms of the agreement under which these concessions were given and see if a tax is consistent with these agreements,” an official said, adding the term “post-Nelp” could be a typographic error and would mean Nelp regime as there are no exploration & production (E&P) activities beyond pre-Nelp and Nelp. Through six Nelp rounds, the government has signed 162 production sharing contracts (PSCs) with public and private sector oil companies like RIL, Cairn and ONGC. PSCs for over 50 more blocks under the Nelp-VII are yet to be signed.

The committee has suggested a special tax on crude output for blocks given in pre-Nelp regime. The tax should be temporary and should be 100% of the benchmark for PSUs such as ONGC, and 40% for private or joint ventures between public and private companies.

In a communication to the PMO, the oil ministry has said domestic gas price is highly controlled at a fifth of the prevailing global price of around $15 per million British thermal unit (mBtu) and any attempt to impose windfall gain tax on gas is unjustified. These comments are significant since RIL is set to produce about 25 million metric standard cubic meter of gas (mmscmd) daily from next month.

Gas output would soon go up to 40 mmscmd. “There have been some proposals to examine windfall profit tax on oil and gas production. We have sent our comments to the competent authority that gas prices prevailing in India are actually very low and, therefore, (it is) difficult to justify a demand for any kind of windfall taxation, especially on the production of natural gas,” an official said.

“Having opted for a PSC regime over the concession system, the government of India has automatically provided for capture of all upside potential (higher revenue) by means of an increasing higher take for the government in the form of profit petroleum, higher corporate tax payouts and increased royalty,” an official source added